Annual Report and Accounts 2019 Accounts and Report Annual

plc Foods British Associated Annual Report and Accounts 2019 Accounts and Report Annual

ANNUAL REPORT AND ACCOUNTS 2019 Grocery

Contents

Strategic report 1 Financial headlines 2 Our businesses at a glance Read more 4 Chairman’s statement page 12 6 Chief Executive’s statement 8 Group business model and strategy 10 Key performance indicators 12 Operating review 12 Grocery Sugar 22 Sugar 30 Agriculture 34 Ingredients 40 Retail 50 Financial review 53 Responsibility 62 Principal risks and uncertainties 67 Viability statement Governance Read more 68 Board of directors page 22 70 Corporate governance 83 Remuneration report 107 Directors’ report 110 Statement of directors’ responsibilities Agriculture 111 Independent auditor’s report Financial statements 119 Consolidated income statement 120 Consolidated statement of comprehensive income 121 Consolidated balance sheet 122 Consolidated cash flow statement 123 Consolidated statement of changes in equity 124 Significant accounting policies Read more 131 Accounting estimates page 30 and judgements 132 Notes forming part of the financial statements 176 Company financial statements Ingredients 183 Progress report 184 Company directory

Read more page 00

Read more page 40 Well-loved ABOUT household brands ASSOCIATED 9/10 BRITISH UK households use FOODS our brands

Our purpose is to provide safe, nutritious, affordable food and clothing that is great value for money.

A leader in our markets

Grocery Retail Our grocery brands occupy leading Primark is the largest clothing, positions in markets across the footwear and accessories globe. In the UK, nine out of ten retailer in the UK, and also has a households use our brands. significant store portfolio in ten European countries and in the US. Sugar AB Sugar is one of the largest sugar producers in the world. Illovo is the largest sugar producer in Africa and British Sugar is the sole processor of the UK sugar beet crop.

Agriculture AB Agri is the UK’s largest agri-food company and a leader in nutrition, science and technological innovation in animal feed.

Ingredients Our Ingredients business is a leader in yeast, bakery ingredients and specialty ingredients for the food, feed and pharmaceutical industries.

Read more page 2 Acting responsibly A global presence

Respecting everyone’s dignity 52 countries operated Acting with integrity in worldwide Progressing through collaboration Pursuing with rigour

Read more about our values and how we make a difference in our 2019 Responsibility Report www.abf.co.uk/responsibility An entrepreneurial spirit 138,000 people worldwide

Read more about our people www.abf.co.uk/responsibility Strategic report

Associated British FINANCIAL Foods is a diversified HEADLINES international food, ingredients and retail group with sales of £15.8bn, 138,000 employees and Group revenue operations in 52 £15.8bn countries across Actual +2% Europe, southern Constant currency: +2% Africa, the Americas,

Adjusted operating profit Adjusted profit before tax Asia and Australia. £1,421m £1,406m Actual +1% Up 2% Constant currency: +1%

Adjusted earnings per share Dividends per share 137.5p 46.35p Up 2% Up 3%

Gross investment Net cash £837m £936m

Operating profit Profit before tax £1,282m £1,173m Down 5% Down 8%

Basic earnings per share 111.1p Down 13% Review of the year online: www.abf.co.uk/ar2019

Adjusted operating profit is stated before the amortisation of non-operating intangibles, profits less losses on disposal of non-current assets, transaction costs, amortisation of acquired inventory fair value adjustments and exceptional items. These items, together with profits less losses on the sale and closure of businesses, are excluded from adjusted profit before tax and adjusted earnings per share. References to operating profit in the Operating review are based on this adjusted operating profit measure.

Constant currency figures are derived by translating the 2018 results at 2019 average exchange rates, except for countries where consumer price inflation has escalated to extreme levels, in which case actual rates are used.

References to underlying profit for Twinings Ovaltine and Grocery exclude a £12m charge in 2019 in respect of the closure of the Twinings tea factory in Jinqiao, China.

Annual Report and Accounts 2019 Associated British Foods plc 1 Our businesses at a glance

A DIVERSE GROUP OF BUSINESSES

Revenue Twinings and Ovaltine The Americas Grocery Twinings and Ovaltine are our leading In the US, Mazola is the leader in corn oil 100 £3,521m global hot beverage brands enjoyed in and we sell a range of baking brands Twinings and Ovaltine over 100 countries. through retail and foodservice channels. 2018: £3,420m Capullo is a premium canola oil in Mexico. Household food enjoyed in over 100 countries Europe and international Our portfolio includes Mazzetti Australia brands enjoyed all Adjusted operating profit balsamic vinegars, Jordans and Dorset Ham, bacon and smallgoods under the over the world cereals, Ryvita, Kingsmill, Patak’s and Don and KRC brands. Tip Top Bakeries 16,000 £380m Blue Dragon, Silver Spoon and produce a range of well-known breads employees 2018: £335m Billington’s sugars. and baked goods. Yumi’s produces hommus, vegetable dips and snacks. Read more page 12 Revenue Europe Southern Africa Sugar Our UK beet sugar factories typically Illovo is Africa’s largest sugar producer 24 £1,608m produce well over 1 million tonnes of with agricultural and production facilities plants worldwide sugar annually. Azucarera in Spain in six countries. Typical annual sugar A world-leading 2018: £1,730m produces beet sugar from three factories production is 1.7 million tonnes. and also refines sugar from cane raws. China sugar business Adjusted operating profit We operate two beet sugar factories focused on excellence in the north east of China, with annual 34,000 £26m sugar production capacity of over employees 2018: £123m 180,000 tonnes. Read more page 22

Revenue AB Agri It supplies compound animal feed, feed Agriculture AB Agri produces animal feed, nutrition- enzymes, specialised feed ingredients 65 £1,385m and technology-based products and and a range of value-add services to services for the agri-food industry. It farmers, feed and food manufacturers, countries worldwide 2018: £1,350m Products and services operates all along the food, drink and processors and retailers. It also buys biofuel industry supply chains. grain from farmers and supplies crop for the agri-food Adjusted operating profit inputs through its joint venture arable industry 3,000 £42m operation, Frontier Agriculture. employees 2018: £59m Read more page 30 Revenue Yeast and bakery ingredients Specialty ingredients Ingredients AB Mauri operates globally in yeast and ABF Ingredients produces value-added 52 £1,515m bakery ingredients production, supplying products and services for food and plants in production industrial and artisanal bakers and the non-food applications. 2018: £1,459m foodservice and wholesale channels. It is Yeast, bakery and for AB Mauri It manufactures and markets enzymes, a technology leader in bread improvers, specialty lipids, yeast extracts, extruded dough conditioners and bakery mixes. specialty ingredients Adjusted operating profit ingredients, pharmaceutical excipients supplied globally and antacids worldwide with 7,000 £136m manufacturing facilities in Europe, employees 2018: £143m America and India. Read more page 34 Revenue Primark Buying and merchandising teams in Primark is a major retail group operating Dublin (Republic of Ireland) travel Retail 373 £7,792m stores in the UK, Republic of Ireland, internationally to source and buy fashion stores Spain, Portugal, Germany, the items that best reflect each season’s key 2018: £7,477m Netherlands, Belgium, Austria, France, fashion trends. Primark’s range includes Quality fashion Italy, Slovenia and the US. womenswear, lingerie, childrenswear, menswear, footwear, accessories, at value-for-money Adjusted operating profit It offers customers quality, up-to-the- hosiery, beauty and homeware. prices 78,000 £913m minute fashion at value-for-money prices. employees 2018: £843m Read more page 40

2 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Annual Report and Accounts 2019 Associated British Foods plc 3 Chairman’s statement

The resilience of the group was demonstrated this year.

Michael McLintock Chairman

It is a testament to the schemes between the 2017 and 2018 of sugar and the end of the EU sugar year ends. The group’s adjusted regime. Following the subsequent breadth of the group effective tax rate of 21.5% was in line reduction in EU sugar supply, sugar that profit growth was with last year. Adjusted earnings per prices have increased and we look share increased by 2% to 137.5p. forward to a material increase in our achieved in a year Sugar profit in the coming year. This year Primark celebrated the 50th where the effects of a anniversary of the opening of its first We continued to invest for the long store, and I am pleased to report another term, with a gross investment of radical change in the year of strong progress and notable £837m comprising capital expenditure European sugar market achievements. The expansion in selling of £737m and acquisitions of £100m. space included Birmingham High Street, The capital expenditure for Primark fully impacted our a showcase for our entire product range was driven by investment in selling and innovative in-store experiences, and space expansion, supply chain and businesses. our first move into eastern Europe with infrastructure. Investments in our food the opening of a store in Slovenia. Our businesses focused on capacity In a period when our ongoing sugar stores in the US performed very well expansion and projects to drive further businesses experienced a significant and we have announced four further operational efficiencies. drop in profits, the resilience of the stores to open in the near future. In September 2018 we were delighted group was demonstrated by an increase Primark again demonstrated its track to acquire Yumi’s, an Australian in the profits of our non-sugar activities, record for operational excellence with producer of premium chilled dips and mainly driven by strong performances further improvements in buying and snacks, and, on 6 September 2019, from Grocery and Primark. Revenues stock management. were 2% higher than last year at Anthony’s Goods, a California-based £15.8bn and adjusted operating profit Adjusted operating profit at Grocery online marketer and blender of speciality was 1% ahead at £1,421m. There was well ahead of last year. The margin baking ingredients. We also signed an was a minimal effect from currency improvement was broad-based, with agreement to form a yeast and bakery translation and so revenue and profit excellent performances from our ingredients joint venture in China with increases were broadly the same at businesses in Australia and the US, Wilmar International. The joint venture constant currency. Net finance expense Acetum, which was acquired last year, will see us build a major new low-cost was much lower than last year following and Twinings Ovaltine on an underlying yeast plant in the north east of China the maturity of a portion of the group’s basis. Profit was down substantially at and will combine AB Mauri’s existing private placement notes and other AB Sugar, mainly due to the effect of activities and technical expertise in financial income was higher as a a further decline in EU sugar prices last China with Wilmar’s extensive sales consequence of an increase in the year. This decline resulted from a and distribution capability. surplus of our defined benefit pension coincidence of a regional oversupply

4 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Our businesses have always IFRS 16 Leases We have set aimed to make a lasting positive The group will adopt the new contribution to society and our 2019 accounting standard IFRS 16 Leases out our four Responsibility Report, Living our from the coming financial year. This is values, details the actions we are a significant accounting change for the taking to invest in our people, support group and will bring lease liabilities of group-wide society, strengthen supply chains £3.6bn on to the balance sheet, and respect our environment. To predominantly relating to Primark’s values this see how we make a difference, leasehold stores. Under our chosen please download Living our values, transition option, the results for the year. at www.abf.co.uk/responsibility. 2019 financial year will not be restated. However, we have set out the pro forma Remuneration effects on our financial results this year, This year we have undertaken a www.abf.co.uk/responsibility and on the key metrics for Primark, in review of the group’s executive reward the Financial review. arrangements which has included consultation with some of the group’s Outlook largest shareholders. As a result, a In the coming year, AB Sugar will number of changes are proposed to our benefit materially from the increase remuneration policy to further improve seen this year in EU sugar prices and alignment with shareholder interests from further cost reduction. We expect and these are set out in the another year of strong profit and margin Remuneration Report. growth in Grocery, with Twinings Ovaltine in particular benefiting from The board a more efficient tea supply chain. In September 2018 we welcomed Graham Allan to the board as a non- Primark will continue to expand its executive director. I want to thank selling space next year, with the most Graham for also leading this year’s stores being added in France and internal evaluation of the board and its Spain. Looking further ahead, Primark We delivered a stronger operating cash committees. Javier Ferrán stood down has a strong pipeline of good quality flow this year and the closing net cash at our Annual General Meeting in sites. We expect cost reductions in position of £936m, before the adoption December 2018 and my last statement both the cost of goods and overheads of IFRS 16 from the coming year, recorded my thanks to Javier. Ruth during the year, but the weakness of compared to £614m at last year end. Cairnie took on the responsibilities of sterling during this financial year will The group has the financial strength to Senior Independent Director. Richard result in a margin decline for Primark invest in all its businesses and to Reid was appointed as designated in the first half. The sterling exchange continue to pursue value accretive non-executive director for engagement rate is currently very volatile but, at acquisition opportunities. with the workforce. current exchange rates, we expect margin in the second half to be in line Statutory operating profit for the year Employees with the same period this year and was 5% down at £1,282m after taking These results are a tribute to the margin for the full year to be only a into account exceptional charges of ongoing dedication and commitment small reduction on that achieved this £79m. Losses on sale and closure of of our 138,000 employees during the year. Margin comparisons are on a businesses increased to £94m this year past year. Operating in 52 countries, lease-adjusted basis. and as a result, the statutory profit some of which are challenging markets, before tax reduced by 8% to £1,173m they have delivered operational Our businesses have completed all and basic earnings per share reduced by improvements which have underpinned practical preparations for Brexit and 13% to 111.1p. the increased profit and cash generation contingency plans are in place should that we report today. I would like to our businesses experience some Corporate responsibility thank all of our employees for their disruption at the time of exit. At Associated British Foods, our valuable contribution, determination purpose is to provide safe, nutritious, Taking these factors into account, at to succeed and in bringing our values affordable food and clothing that is great this early stage, we expect progress, on to life every day. value for money. We are committed to both a reported and an IFRS 16 adjusted being a good neighbour and supporting Dividends basis, in adjusted earnings per share for the communities where we operate. I am pleased to report that a final the group for the coming year. dividend of 34.3p is proposed to be paid This year we have, for the first time, Michael McLintock on 10 January 2020, to shareholders on set out our four group-wide values: Chairman the register on 13 December 2019. acting with integrity, respecting Together with the interim dividend of everyone’s dignity, progressing through 12.05p paid on 5 July 2019, this will collaboration and pursuing with rigour. make a total of 46.35p for the year, an These values provide clarity and increase of 3%. guidance across all our businesses for employees, customers, suppliers and shareholders alike.

Annual Report and Accounts 2019 Associated British Foods plc 5 Chief Executive’s statement

The group made further progress this year.

George Weston Chief Executive

The group made Our Grocery businesses enjoyed a markdowns. We continued to put the successful year, with strong underlying customer at the heart of our digital further progress this profit growth of 14% after adjusting for campaigns, with our social media year. Group revenue the £12m cost for the closure of the channels now boasting 20m followers, Twinings tea factory in China. George up from 13m last year. We successfully increased by 2% to Weston Foods in Australia, ACH in the collaborated with high profile influencers US and Acetum all delivered particularly with whom we launched special £15.8bn and adjusted impressive margin improvements collections throughout the year, operating profit of through better procurement and cost generating further social media reach. reduction. We continued to invest in our We achieved another year of substantial £1,421m was 1% manufacturing capability and the new market share growth in the UK. The facilities commissioned for Ryvita and group’s like-for-like sales decline of higher than last year, for noodle production will increase 2% was significantly affected by at constant currency. capacity and product innovation. At weak trading in Germany where we Allied Bakeries we are committed to have been taking action to address reducing the operating losses this performance. A new managing director coming year, with a programme of cost is in role and is leading a number of reductions. These follow the closure of initiatives which include targeted local the Cardiff bakery at the end of the marketing campaigns. financial year. We continued to develop Profit at AB Sugar was well down on the our presence in the faster growing prior year, as expected, due to lower EU segments of the grocery market and sugar prices and a poor crop in China. see much potential from our recent With our ongoing focus on performance acquisitions of Yumi’s in Australia and improvement and cost reduction, Anthony’s Goods in the US. improving EU sugar prices and the Primark marked its 50th anniversary by continued strength of Illovo we look delivering an 8% increase in profit. forward to an improvement in the profit 14 new stores were added across the and return on capital employed for our UK and continental Europe in the year, sugar business in the coming year. including our largest ever store, in AB Agri experienced a difficult year, Birmingham. Looking forward, France, with the loss of co-products following Italy, Spain, eastern Europe and the US the closure of the Vivergo bioethanol provide the most significant prospects plant last year, lower UK feed margins for further growth. Our buying team and a smaller sugar beet crop. Our delivered a further improvement in Ingredients business was impacted by margin, driven by exciting on-trend the challenging economic environment ranges, better buying and reduced

6 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

in Argentina and this year’s result includes a hyperinflationary accounting charge for the first time. Brexit Primark marked its 50th The group’s business model, wherever possible, aligns food production with anniversary this year. the end market for the product while Primark operates largely discrete supply chains for its stores in each of the UK, US and EU27. The group therefore undertakes relatively little cross-border trading between the UK and the rest of the EU and consequently we do not expect Brexit to have a significant effect on the group’s results. Nevertheless, we have evaluated the forms that Brexit could take and our businesses have completed all practical preparations and have contingency plans in place should they experience some disruption at the time of exit. Arthur Ryan Arthur Ryan, the founder of Primark, passed away in July this year after a short illness. My grandfather and uncle recruited Arthur to run Penneys in 1969 with only one store in Dublin. He went on to build a phenomenal world-class retailer, making fashion accessible to all, and his legacy looms large as one of the great giants of retailing. We will all miss his larger-than-life presence, his sharp Read about Primark’s wit and his friendship. 160,000 sq ft new store in Birmingham George Weston page 46 Chief Executive

Annual Report and Accounts 2019 Associated British Foods plc 7 Group business model and strategy

A DIVERSIFIED INTERNATIONAL GROUP

Our purpose At Associated British Foods we believe our purpose is to provide safe, nutritious, affordable food and clothing that is great value for money.

Business structure Our businesses are organised so that they are close to the markets and customers they serve.

Grocery Sugar Agriculture Ingredients Retail

Strategy The corporate centre agrees strategy and budgets with the businesses and monitors their performance closely.

Grocery Sugar Agriculture Ingredients Retail strategy strategy strategy strategy strategy page 13 page 23 page 31 page 35 page 41

Organic growth Our values Organic growth is achieved through Our values are a common thread that ties investment in marketing, in the all of our businesses together. development of existing and new Respect products and technologies, and in Integrity targeted capital expenditure to improve efficiency and expand capacity. Collaboration Rigour Operating review Responsibility page 12 page 53

8 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Business structure Our values and culture The group is managed as five business segments that bring We pride ourselves on being a first-class employer and we together common industry expertise, operational capability work actively to develop capability and create opportunities and market intelligence. Operational decisions are made for employee progression. As a result, people tend to stay locally because, in our experience, they are most successful with the group for a long time and build exciting careers. when made by the people who have the best understanding Whether through formal training and apprenticeships, of their markets and who have to implement them. cross-fertilisation of skills between roles or mentoring, we encourage and support everybody to thrive at work. The corporate centre aims to provide a framework in which our business leaders have the freedom and decision-making Being part of Associated British Foods means being part of authority to pursue opportunities with entrepreneurial flair. a community that respects human rights and celebrates The centre is small and uses short lines of communication to diversity. We recognise the United Nations Guiding Principles ensure prompt, incisive and unambiguous decision-making. on Business and Human Rights and aim to adhere to the core It ensures that business activities are appropriately monitored ILO conventions and all relevant laws relating to working and supported. conditions and environment. We live and breathe our values through the work we do every Strategy day. We have articulated a set of four values that reflect the The group balance sheet is managed to ensure long-term way we conduct ourselves in every business across the financial stability, regardless of the state of capital markets, group. These values are: and capital funding is made available to all of our businesses • Respecting everyone’s dignity: We strive to protect the where returns meet or exceed clearly-defined criteria. The dignity of everyone within and beyond our operations. centre provides selected services where the scale of its operations enables a more cost-effective or efficient delivery, • Acting with integrity: We proudly promote and protect where expertise that might not be available at a business level a culture of trust, fairness and accountability that puts can be retained by the group, or where the provision of such ethics first. From farms and factories right through to our services would otherwise distract business executives. boardroom we are committed to embedding integrity into every action. Such services include investor relations, pensions, insurance, legal support, tax and treasury management, where specialist • Progressing through collaboration: We work with others expertise is brought together in one place for the benefit of to leverage our global expertise for local good. the group as a whole. The centre also co-ordinates selected • Pursuing with rigour: From the products we make, to the value-added capabilities to support the businesses in their way we preserve the resources we rely on, we are always local markets such as talent management and development, learning and incorporating better practices. procurement, and the sharing of best practice in, for example, health and safety or engineering risk management. We Our values can be seen in action, for example, in our work in operate to high ethical standards as an organisation and investing in the health and safety of our colleagues, promoting expect the same of our employees. We encourage an open diversity, or in respecting human rights through our supply and honest culture in all our dealings and ensure that our core chain programmes. Numerous business-specific examples of values are fully implemented throughout the group. such activities are highlighted throughout this report and also in our 2019 Responsibility Report. Organic growth Our Company’s values are lived out best when they encourage our employees to feel supported to bring their We are committed to innovation, the continuous pursuit values and passions to work. It is also in the many acts of of improvement and the maintenance of our efficient decency, kindness and neighbourliness that take place across manufacturing capability. our business every day that our values are truly found. The group takes a long-term approach to investment and is committed to increasing shareholder value through sound commercial, responsible and sustainable business decisions that deliver steady growth in earnings and dividends. We Responsibility: People aim to operate in a sustainable, ethical, efficient and safe page 55 manner. We have a strong culture of continuing operational improvement and focus on delivering exceptional quality and customer service. Acquisitions are made to complement existing business activities and to exploit opportunities in adjacent markets or geographies.

Annual Report and Accounts 2019 Associated British Foods plc 9 Key performance indicators

MEASURING OUR PERFORMANCE

Financial

Adjusted operating proﬁt (£m) Adjusted proﬁt before tax (£m) Net cash/(debt) (£m)

2019 1,421 2019 1,406 2019 936

1,404 1,373 614

1,363 1,310 673

1,118 1,071 (315)

1,082 1,024 (194)

Adjusted profit and earnings measures are used to provide a consistent indicator of underlying Cash and cash equivalents less loans and other performance year-on-year and are aligned with incentive targets. borrowings. This measure is used to monitor the group’s liquidity and capital structure and, where relevant, to calculate ratios associated with the group’s bank covenants.

Group revenue (£bn) Gross investment (£m) Cash generation (£m)

2019 15.8 2019 837 2019 1,509

15.6 1,165 1,430

15.4 945 1,641

13.4 1,066 1,310

12.8 675 1,175

Monitoring of revenue provides a measure of A measure of the commitment to the Net cash generated from operating activities business growth. Constant currency long-term development of the business is monitored to ensure that profitability is comparisons are also used to provide greater through expenditure on property, plant and converted into cash for future investment clarity of underlying performance. equipment, intangible assets, biological and as a return to shareholders. assets and the acquisition of new businesses or minority interests in existing operations.

Adjusted EPS (pence) Dividend per share (pence) Return on capital employed (%)

2019 137.5 2019 46.35 2019 19.3

134.9 45.00 20.1

127.1 41.00 20.5

106.2 36.75 18.1

101.5 35.00 17.6

The group’s organic growth objective aims to deliver steady growth in earnings and dividends over Adjusted operating profit expressed as a the long term. Adjusted earnings per share is a key management incentive measure. percentage return on the average capital employed in the business throughout the year.

10 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

We use key performance indicators (KPIs) to measure our progress in delivering the successful implementation of our strategy and to monitor performance.

Non-financial

Number of employees Tonnes of sugar produced (m)

2019 138,097 2019 3.443

137,014 3.681

132,590 3.410

129,916 3.080

124,036 4.339

A measure of the scale and growth of the A measure of the scale and development group – the average number of people of the group’s sugar operations. employed during the financial year with a contract of employment, whether full-time, part-time, contractor or seasonal worker.

Number of countries of Primark selling space (sq ft 000) operation (Primark)

2019 15,642 2019 12 14,805 11 13,862 11 12,342 11 11,155 10

The number of countries and the retail selling space from which Primark operates are measures of the breadth, scale and growth of the business.

Reportable injury rate (%) Gender balance in workforce – all employees (%)

2019 0.54 2019 52 48 0.63 51 49 0.59 48 52 0.47 48 52 0.48 48 52 A measure of the group’s management of the Men health and safety of its workforce – the number Women of injuries resulting from an accident arising out of, or in connection with, work activities that A measure of the gender balance of all were required to be reported to external employees in the group with a contract of regulatory authorities, divided by the average employment, whether full-time, part-time, number of employees. contractor or seasonal worker.

Each business develops KPIs that are relevant to its operations. These are regularly monitored and, in the case of adjusted operating profit and return on capital employed, are variously used as local management incentive measures. Additional performance measures, both financial and non-financial, are detailed by business segment in the operating review and in the Corporate Governance Update.

Annual Report and Accounts 2019 Associated British Foods plc 11 Operating review | Grocery

ABOUT GROCERY

Grocery comprises consumer-facing businesses that manufacture and market a variety of well-known household brands both nationally and internationally.

Twinings Ovaltine Allied Bakeries The largest of our grocery businesses, Allied Bakeries produces a range of Twinings and Ovaltine have broad bakery products under the Kingsmill, geographical reach. Twinings has been a Sunblest, Allinson and Burgen brands, major tea business since 1706 and now with flour and semolina produced by sells premium teas and infusions in sister company, Allied Mills. Speedibake more than 100 countries. Ovaltine specialises in own-label baked goods, malted beverages and snacks are such as muffins and doughnuts, for consumed throughout the day in retail and foodservice customers. countries across the globe. George Weston Foods, Australia Acetum George Weston Foods is one of Acquired in 2017, Acetum is the leading Australia and New Zealand’s largest Italian producer of Balsamic Vinegar of food manufacturers. Tip Top is one of Modena. It sells vinegars, condiments the most recognised brands in Australia and glazes across the globe, trading with an extensive range of bread under the Mazzetti brand. and baked goods. The Don and KR Castlemaine brands manufacture AB World Foods a variety of bacon, ham and meat AB World Foods focuses on the products. Yumi’s produces hommus, creation and development of world vegetable dips and snacks and is the flavours and its Patak’s and Blue leader in the Australian market. Dragon branded products are sold internationally. ACH Foods, North America ACH Foods includes within its range of Westmill Foods branded products Mazola, the leading Westmill Foods specialises in high- corn oil in the US, Capullo, a premium quality ethnic foods including rice, canola oil in Mexico and renowned spices, sauces, oils, flour and noodles baking brands such as Fleischmann’s sold under brands such as Rajah, yeast, Karo corn syrup and Argo Lucky Boat, Tolly Boy and Elephant. corn starch. Jordans Dorset Ryvita Silver Spoon Jordans Dorset Ryvita operate in the Silver Spoon and Billington’s are better-for-you cereal and savoury our two retail sugar brands in the UK, biscuits categories with increasing complemented by a range of dessert international presence. Jordans has a toppings and syrups under the Askeys heritage of using traditional methods in and Crusha brands. the production of its wholegrain cereals and cereal bars. Dorset’s award-winning Sports Nutrition muesli and granolas are renowned for HIGH5 and Reflex Nutrition are brands the quality of their natural ingredients. in the sports nutrition sector producing Ryvita has a strong reputation in healthy protein supplements, recovery gels and snacking and is the UK category leader drinks in the UK and sold internationally. in crispbreads.

12 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

100 Twinings and Ovaltine enjoyed in 100 countries

16,000 employees

Grocery strategy Each of our Grocery businesses pursues an independent strategy appropriate to its particular market position and stage of development. Twinings, Ovaltine, Acetum, Jordans Dorset Ryvita and AB World Foods have had considerable success extending their reach into new and emerging markets, whilst some are focused on developing brands in their core domestic markets. All of these businesses are committed to the consistent development of their brands, and consumer research is conducted locally and internationally to establish consumer needs and ensure appropriately targeted investment. Our production facilities are well maintained, and we take a long-term approach to capital investment, recognising the merits of building for the future. Acquisitions are undertaken when opportunities are presented to either strengthen or complement existing businesses.

Annual Report and Accounts 2019 Associated British Foods plc 13 Grocery | Operating performance

HOUSEHOLD FOOD BRANDS ENJOYED ALL OVER THE WORLD

Revenue Grocery revenues were 2% ahead of last Jinqiao, China to our existing site in year at constant currency and growth in Swarzedz, Poland during the first £3,521m adjusted operating profit was excellent half, new supply routings have been at 10%. This year’s result included a established and are functioning well. 2018: £3,420m £12m one-time cost for the closure of At Allied Bakeries revenues progressed Actual fx: +3% the Twinings tea factory in China. this year following price increases Constant fx: +2% Adjusting for this, operating profit was agreed with a number of customers. up 14% at constant currency. Margin, at As previously advised, the termination 10.8%, improved significantly again this of our largest private label bread Adjusted operating profit year with major improvements delivered contract will lead to a volume loss in our by George Weston Foods in Australia, next financial year. As a consequence, ACH in the US, Acetum and Twinings £380m the carrying value of the assets in this Ovaltine, on an underlying basis. 2018: £335m business was no longer supported by Twinings delivered good revenue our forecasts of its discounted future Actual fx: +13% growth and benefited from the success cash flows and a non-cash impairment Constant fx: +10% of Cold Infuse teas in their launch charge of £65m has been recognised markets of the UK and Australia. During as an exceptional item in the income the summer, distribution began in the statement. We have taken steps to Adjusted operating US while the range was extended with reduce our capacity and closed our profit margin new flavours and Kids Cold Infuse. The Cardiff bakery at the end of the year. development of our herbal teas range During the coming year we will 10.8% included new launches in Australia and implement cost reductions in a number 2018: 9.8% France and good growth from of operational areas to further reduce Superblends in the UK. Ovaltine sales the losses in this business. growth was supported by another year Jordans, Dorset Cereals and Ryvita Return on average of success of new product launches delivered an improved manufacturing capital employed in Switzerland and good growth in capability, with the commissioning of Thailand, China and Myanmar. Following the new Ryvita bakery in Bardney, the transfer of tea production from 27.4% Lincolnshire, and the transfer of muesli 2018: 25.9% production to a state-of-the-art facility in Poole, Dorset. Margin declined due to higher raw materials costs. Silver Spoon expanded distribution in the UK, winning a sugar contract with a major retailer. AB World Foods enjoyed a record year with strong growth in both the UK and internationally. Sales at Blue Dragon were driven by an expanded range of meal kits while Patak’s grew sales of pappadums and continued to enjoy success with paste pots. Westmill relaunched its Rajah spice range and commissioned a further noodle production line at its factory in Manchester, although rice margins fell in a highly competitive market.

14 Annual Report and Accounts 2019 Strategic report In action

Poole, Dorset

At Acetum, our leading balsamic vinegar producer, margins improved significantly as grape must prices Bardney, Lincolnshire returned to lower levels than the exceptionally high level that followed the poor grape harvest in 2017. During the year investment was made to support the market entry of the Mazzetti brand in the UK.

Operating profit for our grocery Biggleswade, businesses in North America was Bedfordshire well ahead of last year. ACH performed strongly, with excellent margin improvement driven by lower oil commodity costs, further market share gains in Mazola corn oil and improved trading in syrup and baking FUELLING products in Mexico. On 6 September 2019 we completed the acquisition of GROWTH Anthony’s Goods, a California-based blender and online marketer of speciality baking ingredients. This acquisition will complement ACH’s Over the past three years Jordans Dorset Ryvita leading position in cooking and baking has made major improvements to its supply chain brands in North America and will provide a presence in the emerging, in the UK to improve efficiency and facilitate further fast-growth market of premium international growth. organic foods. George Weston Foods in Australia The programme has included the • Finally, in 2019 we announced our delivered excellent margin and consolidation of the businesses’ investment in a new cereal bar operating profit growth. Tip Top production footprint, together with production facility in Biggleswade, achieved strong sales in packaged investment in new state-of-the-art Bedfordshire. Jordans was the first bread and realised improved margins equipment for cereal bars, muesli company to launch a cereal bar driven by operational efficiencies, and crispbread. The focus has been in the UK in 1981 and this new while the Don meat business on building core manufacturing production line will improve significantly increased operating capability in the principal production efficiency and enable innovative profit and benefited from favourable sites in Bedfordshire, Lincolnshire new product recipes. commodities management. In and Dorset. This investment comes on the back September 2018 we acquired Yumi’s, • In 2018, we moved muesli of significant international sales a producer and marketer of premium manufacturing operations into growth for the business, which chilled dips and snacks. Sales grew a purpose-built facility in Poole, requires a more flexible supply chain strongly, a new range of lentil and Dorset. This new facility allowed capable of making different products pulses dips were well received, and for increased production volume for multiple markets. International the business became the market while being closer to port facilities sales now account for approximately leader in the chilled dips category in to simplify export sales. half of our overall output, with key Australia during the year. countries including France, Canada • At the same time the business has and Australia and recent entry into opened a new production facility Brazil and Germany. in Bardney, Lincolnshire to produce Ryvita crispbread. The new factory, built on a former British Sugar site, is using the latest machinery to produce Ryvita products using less energy and generating less waste.

Annual Report and Accounts 2019 Associated British Foods plc 15 Grocery | In action

16 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

SUPER

The new range is made with Twinings has tapped botanicals, natural flavours and into the growing desire ‘super’ ingredients to support everyday wellbeing. Leading medical for products that both herbalist Pamela Spence advised taste good and do Twinings on how best to select and combine key ingredients, working you good, with the with our master blenders to carefully craft each blend. The flavours successful UK launch combine familiar favourites with of Superblends green delicious twists, such as mango and pineapple with ginseng root and teas and infusions. added vitamin B6. Championing wellbeing We developed Superblends in response to the increasing demand for convenient food and drink products that support a healthy lifestyle. The brand is positioned as the champion of consumers’ everyday wellbeing. Its strapline ‘Here for you’ emphasises Superblends’ core promise of ‘a helping hand to keep you feeling great’ and product names refer to positive states, such as Sleep or Glow, or to their superfood ingredients, like turmeric or beetroot. Our launch marketing complemented this nurturing stance, with Twinings collaborating with health and wellness influencers to provide consumers tips for mental resilience, from practising mindfulness to taking time out. The first seven Superblends flavours were launched in February 2018, with four additional products following successfully in spring 2019. In the 1m first 12 months, one million UK UK households purchased households purchased the brand. the brand in first 12 months The new range again demonstrates Twinings’ ability to extend beyond its traditional black tea heritage and develop innovations that appeal to new, often younger audiences. The three-centuries-old brand, which is already the UK market leader in infusions and green tea, is now looking to further expand the Superblends portfolio.

Annual Report and Accounts 2019 Associated British Foods plc 17 Grocery | In action

MAKING LIVES BETTER AT THE SOURCE

Twinings’ ‘Sourced with Care’ programmes have helped more than one-third of a million people in our supplier communities enjoy better lives.

The initiative focuses on three pillars: privacy, dignity and security. Lalita’s improving life opportunities by toilet is one of around 2,000 we have empowering women and young installed in suppliers’ plantations in people through health and education; Assam and Darjeeling. improving living standards with Sasi, a Sri Lankan trade union leader. better living conditions; and boosting Sasi is one of many to have benefited livelihoods by protecting workers’ from our introduction, in partnership rights and improving incomes. with the international development Kenyan tea farmer Josefine. agency CARE International, of Mother-of-seven Josefine trained community development forums as a HERhealth peer educator, via (CDFs). With industrial relations Sourced with Care. Having learnt sometimes strained in the Sri Lankan about essential health issues such tea sector, CDFs provide a space for as nutrition, family planning, workers and leaders to meet, debate sexually transmitted infections issues and share information. and non-communicable diseases, Sasi recently drew on the problem- Josefine now spreads the word solving tactics he’d learnt at his among the female colleagues in her CDF to diffuse a dispute which had tea garden, helping to reduce levels brought his factory to a standstill. of sickness and maternal mortality. He says: “The employer-employee By 2023, in partnership with the relationship on this estate has non-profit organisation Business for improved tremendously thanks to Social Responsibility, we aim to the CDF. I completely changed after reach all 75,000 of our suppliers’ receiving training on communication, female farmers in Kenya via the leadership and gender. Now I know HERhealth programme, and to how to communicate effectively with provide 50,000 women in Kenya, peers and managers.” Malawi and India with access to As a responsible business and essential health services. a founder of the Ethical Tea Lalita, an Assam tea plucker. Partnership, Twinings is driving Women working in Assam often positive change in the industry. have poor latrine facilities, offering However, we cannot do it alone. very limited privacy and becoming Partnership is central to the unhygienic during the rainy season. establishment and sustainability Through Sourced with Care we of an ethical supply chain and we provided Lalita and her student work closely with NGOs, producers, daughter Dipti with a robust new packers, retailers and industry bodies. bathroom and toilet, affording them Meet LalitaAssam tea plucker 18 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

GETTING FROM FIBRE FIT BARREL TO Health consciousness is a major driver of BASKET food purchases in the In 2017 we acquired UK. Ryvita has long Acetum, the world’s been associated with leading producer a healthy, low calorie, of Balsamic Vinegar fibre-rich diet. of Modena.

According to the NHS, fibre helps The major brand of the business is reduce the risk of heart disease, type 2 ‘Mazzetti’, which bears the family diabetes, stroke and bowel cancer. name of Cesare Mazzetti, one of Certain types of fibre can also help the founders of the business. support gut health, but nine out of ten of us aren’t eating the 30g of daily Already the brand leader in Germany, fibre that the UK Government Australia and Holland, Acetum recommends. launched the Mazzetti brand into Meet the UK during 2019. Three versions To address this, Ryvita partnered with of this premium vinegar were sold celebrity TV presenter Davina McCall in retail stores in the UK, supported to launch an online quiz that helped by advertising that appeared people assess their own fibre intake, extensively on the London Kenyan tea farmer Josefine together with the #30in30 Challenge Underground and poster sites which provides hints and tips on how throughout May and June this year. to increase daily fibre intake by 5g. The products are currently available People who signed up received a in Sainsbury’s and Waitrose as well newsletter twice a week along with as on the Ocado website. They have #Fibrehacks from Ryvita and selected also been featured in a number of expert partners. leading UK food publications Since launch in March 2019, over including BBC Good Food, Good 43,000 people have taken the online Housekeeping and The London quiz and over 15,000 have signed up Evening Standard newspaper. to the #30in30 Challenge. A great example of how an established British brand is engaging people to help improve their health and wellbeing.

Annual Report and Accounts 2019 Associated British Foods plc 19 Grocery | In action

FRESHER FLAVOURS

20 Strategic report

Consumer demand for healthy foods is accelerating growth at our Australian chilled dips and snacks business,Yumi’s. Yumi’s, which supplies major Because the dips are made to Jewish retailers and foodservice customers kosher standards they are dairy with traditional hommus, vegetable and gluten free and include few, dips, falafels and vegetable bites, if any, additives. was acquired by George Weston The team at Yumi’s is continually Foods in September 2018. looking for opportunities to bring Meeting evolving trends innovation to the category and takes Its enviable compound sales growth pride in partnering with retailers to rate of 20% over the past three years develop a great pipeline of new reflects the evolution in Australia of vegetable flavours. New products at-home entertaining, the trend for are first trialled and then rotated in healthier eating, the popularity of store to meet customer desire for Mediterranean-style foods, and taste, adventure and variety. declining meat consumption. Premium innovations Yumi’s was founded in 1989 by In February 2019, Yumi’s released Michael and Benjamin ‘Yumi’ a new premium pulse dips range Friedman who have remained with which has been very well received. the business since it joined our The idea behind these dips was to family last year. It initially started out create something on-trend (with as a fish shop serving Melbourne’s lentils, peas and beans being very Jewish community but soon popular), that could attract a higher expanded its range. The team has price, and would still deliver to the grown to about 170 people, all brand’s kosher requirements. passionate about their products. Yumi’s has also recently delivered Australian-grown chick peas and new products in the exciting ‘fresh-from-farm’ vegetables, like snacking consumer segment. These beetroot and capsicum, are cooked products, such as a ‘snack pack’ and roasted on site and then containing hommus and crackers, generously added to hommus to work well both as healthy and tasty flavour classic dip varieties. school lunchbox alternatives and Traditional Jewish family recipes ‘on the go’ snacks. for classic dips handed down from The business relies extensively on ‘Aunty Chumy’, and for mayonnaise social media to drive awareness and and fish dips courtesy of ‘Grandfather has an active and loyal following on Hershel’, are still used today, Facebook and Instagram. ensuring authenticity and quality.

Annual Report and Accounts 2019 Associated British Foods plc 21 Operating review | Sugar Europe ABOUT SUGAR

AB Sugar is a leading producer of sugar and sugar-derived co-products in southern Africa, the UK, Spain and north east China.

We employ 34,000 people and As a global business, we operate in operate 24 plants in ten countries a diverse and continually changing with the capacity to produce some environment with many opportunities 4.5 million tonnes of sugar annually. and challenges. Although we have a Our products are sold into industry global portfolio, we operate with a sectors including food and drink, local heart, working together to do pharmaceutical, industrial, agricultural, what is right for the location and market. power and energy. As we evolve to meet the changing needs of customers, growers and In the EU, Azucarera is the largest others, it is our role to ensure we use producer in Iberia and British Sugar is resources responsibly, build strong the sole processor of the UK beet sugar rural economies and ensure thriving crop. Illovo Sugar is the biggest sugar healthy communities. China processor in Africa, operating in the growing markets of South Africa, By drawing upon everything we Zambia, Mozambique, Malawi, have learnt over many decades as Eswatini and Tanzania. We also have a sugar producer, we continue to a beet sugar business in north east embrace innovation and strive to China which is cost-competitive with create more from less by working cane sugar production. collaboratively across our group and with our stakeholders. Our success has been built on continued development and innovation to meet the changing priorities of our customers, to continually improve our operations and to work with our growers to ensure sustainable, efficient agricultural production.

22 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

24 plants worldwide

4.5m tonnes of annual sugar production capacity

34,000 employees

Africa Sugar strategy AB Sugar is one of the world’s largest and most diverse sugar producers and has a simple vision to be the world’s leading sugar business. Whilst sugar is at the heart of what we do, the sugar production process provides opportunities to do more than simply manufacture an ingredient. We are an innovative and advanced manufacturer, producing a wide range of sugar and co-products. Additionally, we are an energy and power supplier and, as part of the wider agri-business value chain, we are an important contributor to the economy across all our locations. Our success has been built on continued development and innovation to meet the changing needs of our customers, to improve our operations and to work with our growers to ensure sustainable, efficient, agricultural production. We seek to drive continuous improvement in everything we do and are committed to developing our people to build capability and capacity across our business.

Annual Report and Accounts 2019 Associated British Foods plc 23 Sugar | Operating performance

A WORLD-LEADING SUGAR BUSINESS FOCUSED ON EXCELLENCE

Revenue AB Sugar revenues were 5% down favourable weather conditions more on last year at constant currency and than offsetting the reduction in crop £1,608m adjusted operating profit was well area. Good early progress has been down. The profit decline for the year made in the processing of beet at our 2018: £1,730m reflects the first half performance. Profit four UK factories. The majority of sales Actual fx: -7% in the second half was ahead of both for 2019/20 are now contracted and the Constant fx: -5% expectation and last year. EU sugar benefit of higher EU sugar prices will prices were much lower this year result in a significant improvement in and impacted our UK and Spanish the operating result. Adjusted operating profit businesses while a poor crop reduced In Spain, production from beet was production and sales volumes in China. 260,000 tonnes this year, lower than Our African sugar business, Illovo, £26m last year due to adverse weather in the delivered another successful year. 2018: £123m south impacting sugar content of the Our sugar businesses are focused on beet. This shortfall was compensated Actual fx: -79% reducing their cost of sugar production. by increased production from the Constant fx: -78% Further significant cost reductions were refining of cane raws at Guadalete delivered this year, through ongoing which produced 170,000 tonnes. These performance improvement programmes factors, combined with low EU sugar Adjusted operating which target efficiencies in all areas of prices, resulted in our Spanish business profit margin the business. making a substantial loss this year. Contracting of beet volumes with EU stock levels tightened during 1.6% growers for the 2019/20 campaign was 2018/19 as a consequence of lower 2018: 7.1% substantially completed at reduced sugar production in the last campaign. prices from the previous year and this Indications are that EU sugar production led to our contracted crop area reducing for 2019/20 will remain at this lower Return on average by one third, mainly in the north. Beet level following a further reduction capital employed sugar production for 2019/20 is in the crop area which will largely expected to be some 205,000 tonnes, offset improved beet yields. As a with the benefit of an improvement in 1.6% consequence, stocks are forecast beet yield. This will be supplemented 2018: 7.5% to remain low which should provide with over 200,000 tonnes from raws further support to EU sugar prices refining. We expect a significantly which increased this year. improved operating result for Spain in In the UK, sugar production in 2018/19 the next financial year driven by higher of 1.15 million tonnes compared to sales prices, the lower beet costs and 1.37 million tonnes last year when cost reductions. beet yields achieved record levels. Production in 2019/20 is expected to be marginally higher than this year, with an improvement in beet yield following

24 Associated British Foods plc Annual Report and Accounts 2019 Strategic report In action

Sugar production at Illovo increased slightly to 1.73 million tonnes this year, driven by further improvements in cane yields. Profit was in line with expectations, with particularly strong performances in Eswatini and Zambia offsetting weaker results in Malawi and South Africa. The 2019/20 season is progressing well, with sugar production in line with expectations, and we expect SHARING THE RISK another strong performance from Illovo next year. WITH GROWERS In China, sugar production of 149,000 tonnes was well down on last year as AB Sugar continues to work with sugar beet very poor quality beet, following a growers in Spain and China to ensure that sugar period of adverse weather, hampered production and sugar extraction at our remains a sustainable crop for them and us. two factories. As a result of the lower production and low domestic sugar We have a long history of sustainable platform for our prices the business produced a partnering with our growers to growers and ourselves. We significant loss. Looking ahead to next transform the sugar beet industry. are engaging with our newly- year we expect the operating result to In Spain we have assisted growers contracted Spanish growers improve significantly. The new crop is with contracted services, with crop however, unfortunately, others well established, some recovery in agronomy expertise and with have chosen not to supply beet beet quality is expected and grower flexible payment schemes. This to us for the 2019/20 campaign. payments will be increasingly linked has enabled them to improve to the sugar content of their beet. In China, poor weather conditions productivity and made sugar beet a in this year’s campaign impacted At Germains, our seed treatment and more attractive crop. And in China the quality of beet, reducing the enhancement business, UK sales our service-based partnership with level of sugar that could be volumes declined mainly as a result of growers has led to a rise in extracted. We are therefore phasing the ban on neonicotinoids as a seed mechanised land from 2% to 78% in a quality control system, in treatment from this year. However, over ten years and has doubled line with that used in our other sales to the European and US sugar beet volume. countries, whereby payments to horticulture markets continued to Sharing risk and reward growers will reflect the sugar increase and benefited from new In Spain and China, as sugar prices content of beet provided. A third of product development. Production have fallen, the prices we have our growers will come under the capacity was increased at its facility paid to growers for sugar beet new system this year. To facilitate in Gilroy, California. have become unsustainable. the change, we have invested Therefore, this year we took the £1 million in quality testing difficult decision to renegotiate equipment at our two Chinese our contracts with growers in factories. Additionally, the headline both markets. beet price has been reduced by 10%. In Spain, Azucarera has reduced Mutual benefits beet prices for the 2019/20 Our track record of working in campaign by 20%, after ending partnership with our growers has the previous five-year contract benefited us all. We believe that 12 months early. In negotiating sharing the risk now will again the new arrangements, we held deliver mutual benefits, as it will face-to-face talks with 85% of allow both us and our growers to growers, their unions, all key remain competitive and successful regional and national agriculture over the long term and build on what ministers and officials to explain we have achieved together so far. the change. We believe the more realistic terms will provide a

Annual Report and Accounts 2019 Associated British Foods plc 25 Sugar | In action

IN SUGAR

In 2019, we partnered with WaterAid AB Sugar has achieved and the University of Cambridge’s a growing number Centre for Industrial Sustainability to seek new ways of reducing irrigation of industry firsts as water loss in sugar and beyond. The we strive to become Innovate Irrigation Challenge was an exciting opportunity to ask individuals the world’s leading and teams from all backgrounds and regions to submit ideas to help stop sugar business. water losses in irrigation, with the winning idea announced in October 30% 2019. The idea was unanimously we are committed to chosen by a panel of prestigious judges reducing our end-to-end and focuses on a smart irrigation supply chain, water and system that will provide real-time data CO2 footprints by 30% to estate managers and smallhold by 2030. farmers to make informed decisions on water usage and irrigation schedules.

26 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Setting ambitious commitments The supplier of choice We continue to evolve to stay ahead In another sector first, we published in our changing industry. In 2018 we an interactive global sourcing map became the first sugar business to showing where we grow sugar, where publish group-wide sustainability we source from, and where we export commitments for 2030. These outline to. By sharing such ‘field to fork’ details our ambition to further improve our so transparently stakeholders can performance, and that of our supply see that our products are traceable, chain, and are in line with the UN’s sustainable and safe. We also built Sustainable Development Goals. upon the Company’s Modern Slavery and Human Trafficking Statement The 2030 commitments build on our with the AB Sugar Modern Slavery sustainability framework, ‘Global Mind, Statement, which more closely reflects Local Champions’, and its three pillars – our substantial international footprint building rural communities, consuming in agriculture and manufacturing. resources responsibly, and creating We created a modern slavery video thriving and healthy communities. animation to raise awareness, and give They point to how, by 2030, we will: a concise explanation of, the different • build vibrant, diverse value chains types of modern slavery in the context that increase the prosperity of our of our business and industry. communities; AB Sugar’s 2030 aspirations, and our • reduce our water and carbon dioxide other industry-leading actions, represent footprints in our end-to-end supply further progress in our journey to chain by 30% and ensure all our becoming the sugar supplier of choice, plastic packaging is reusable, to our long-term competitive success, recyclable, biodegradable or and meeting the growing demand for compostable; and companies to act responsibly. • provide access to objective scientific advice on sugar, diet and health to over 25 million people around the world. This pledge extends our UK campaign, ‘Making Sense of Sugar’, which we launched in 2014, to help people make informed choices about what they consume by educating them on the role sugar can play in the diet.

In 2018 we became the first sugar business to publish group-wide sustainability commitments for 2030.

Annual Report and Accounts 2019 Associated British Foods plc 27 Sugar | In action

DELIVERING A COMPETITIVE EDGE

As a consequence of policy reforms including systems to assess and AB Sugar is taking and abolition of quotas within the EU manage risk as we begin to use further bold steps in 2017, the global sugar market has financial hedging to offset price volatility. changed substantially creating both Also, our management teams are to strengthen our opportunities and challenges. As a increasingly drawn from both within competitiveness result, current low world sugar prices our sector and externally, to give us the and intense competition combined have right mix of skills, experience and fresh in a challenging squeezed producers’ margins, requiring thinking to thrive. them to reinvent their skills, behaviours We are evolving our business model marketplace. and capabilities. to suit this new sugar market. For Increasing competitiveness example, Illovo Sugar Africa has moved and developing capabilities its commercial focus away from bulk We began preparing for this much sales into the EU to more domestic tougher commercial market long before sales direct to retail consumers. This our peers to deliver substantial benefits has required us to adapt our product, through our performance improvement branding, formats, channels and programme (PIP); focusing on improving logistics as well as address the processes, investing our capital wisely operating model to further improve and increasing revenue generation. efficiency, reduce overheads and increase profits. In Europe, we are In addition, we recognised that we building on recent progress in making would need to do things differently in our factories more efficient. In Spain, today’s marketplace, beyond reducing Azucarera will continue to automate its costs, by strengthening capabilities sites and in the UK, we will consolidate across the group. We are, for instance, improvements to our factories, equipping commercial teams with the warehousing and logistics. tools to navigate this environment,

28 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Investing in innovation Wissington, Cambridgeshire with We continue to invest a significant slice a non-psychoactive variety of the of our cost savings back into higher- cannabis plant used in epilepsy drugs. return capital projects. In 2019 we In Spain Azucarera launched its injected £32 million into the business, Betalia brand, which includes from backing new product development products for animal feed, agriculture within Germains, our seed technology and industrial uses. business, to increasing daily factory Meeting changing needs throughput in our factories in China. We Since launch, our PIP continues to continue to invest time and money in go from strength to strength. The our growers’ businesses and are now programme is embedded in AB Sugar’s using learnings from China to improve DNA, with a high profile across the farmers’ methods and yields in Africa. business and a three-year pipeline of Reducing waste, growing revenue future projects. It will remain central to In addition to our core products made our efforts to anticipate and meet the from sugar beet or cane, we also sell a fresh challenges and opportunities that range of co-products from the advanced will inevitably arise, as our industry manufacturing process, ranging from continues to evolve and new molasses to ethanol, and much more. technologies emerge. To maximise this income stream, as part of our PIP, we systematically reassess our co-products and facilities. In 2017, for example, we replaced the production of tomatoes at British Sugar’s horticultural site in

Annual Report and Accounts 2019 Associated British Foods plc 29 Operating review | Agriculture

ABOUT AGRICULTURE

AB Agri is a leading international agricultural business operating across the agri-food industry, producing and marketing animal feed, nutrition- and technology-based products and services.

With a detailed understanding of productivity and performance, agriculture’s importance in the global developing tailored feeds and new food supply chain, our philosophy is to feeding regimes to improve help change it for the better; influencing performance for every customer. and improving food production, so that Co-product innovation and marketing everyone can eat nutritious food that is AB Agri is the UK’s largest and most produced safely and responsibly. progressive marketer of food, drink Across the agricultural supply chain, our and energy co-products, having products, data insight and technological pioneered the industry for over 30 years. innovation enable our customers to Co-products are a secondary product produce and process high yielding, safe stream created during the manufacture and nutritious food in a responsible way, of food, drink and bio-fuels. They are using fewer chemicals and antibiotics, usually cereal or plant-based residues safeguarding natural resources, and from industries such as brewing, creating less waste and lower distilling and sugar production. emissions. Employing over 3,000 Supply chain, data and technology people around the world we market solutions products in 65 countries and continue With 20 years of expertise, our data and to grow our global operations. Our core technology platforms deliver targeted capabilities include: insight that create continuous Specialised feed ingredients improvement for agricultural supply and mixtures chains in over 60 countries. We work A major investor in research and exclusively with major food processors, development of specialty feed retailers and directly with farmers, ingredients and mixtures, we provide enabling them to: highly specialised advice around • increase productivity and yields; procurement and formulation for livestock • improve animal health and husbandry; feeds and pet foods as well as global and manufacturing expertise. We market • deploy robust quality assurance and pioneering feed ingredients: additive Corporate Responsibility (CR) products, high-quality, bespoke, vitamin programmes. and mineral pre-mixes, starter feeds, Commodity risk management and micro-ingredients developed using We are the UK’s leading grain trading a world-class expertise in feed enzymes, and crop inputs (seed, crop protection nutrition and product formulation. and fertiliser products, agronomy and Compound feed precision farming advice) company We are a major international through Frontier Agriculture, our joint manufacturer and supplier of pig, poultry venture with Cargill plc, providing and dairy feeds with 36 production sites customers with in-depth insight into in the UK, continental Europe and China. global commodity markets. We work closely with major processors and producers to benchmark

30 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategicStrategic REPORT Report report

65 we market products in 65 countries

3,000 employees

Agriculture strategy AB Agri operates through individual, entrepreneurial businesses empowered to grow their interests independently, and through a strong network of contacts across the entire supply chain. Organic growth is achieved through innovative product development and by extending the business’s already broad geographic reach into new territories and new areas adjacent to its core capabilities. Using the diverse breadth of products, services and people within the AB Agri community, the business develops bespoke solutions tailored to its customers’ needs. AB Agri will continue its successful strategy of seeking to make complementary acquisitions to strengthen its portfolio of businesses and its technical capability. It will also continue to collaborate with other businesses in the ABF group to harness new contacts and technologies.

Annual Report and Accounts 2019 Associated British Foods plc 31 Agriculture | Operating performance

PRODUCTS AND SERVICES FOR THE AGRI-FOOD INDUSTRY

Revenue AB Agri revenues were 2% ahead Speciality Nutrition, our premix and of last year at constant currency, driven starter feed business, successfully £1,385m by higher feed sales in the UK and China commissioned a new factory at Fradley where higher feed prices reflected Park, Staffordshire and acquired a 2018: £1,350m increased raw material costs. Adjusted small starter feed business in Poland.

operating profit, however, was down Profits were lower than last year which Actual fx: +3% 30% mainly due to the loss of high benefited from unusually high vitamin Constant fx: +2% margin co-products from the Vivergo prices. Sales and profit at AB Vista were bioethanol plant, which was closed last in line with last year and reflected an Adjusted operating profit autumn, and lower margins on UK increasingly competitive phytase animal feed. enzyme market. We are encouraged by the launch of Signis, our innovative Compound feed volumes in the £42m animal digestion aid. 2018: £59m UK increased due to higher demand in the pig and poultry sectors. The margin Actual fx: -29% decline reflected an under-recovery of Constant fx: -30% energy and distribution costs and lower sales of sugar beet feed to the dairy sector, following the reduction in the Adjusted operating beet crop size. Overheads will be profit margin reduced as a consequence and a restructuring charge has been taken 3.0% this year. Although our Chinese feed 2018: 4.4% business also increased sales, margin declined.

Return on average capital employed 10.7% 2018: 15.7%

32 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report In action

GROWING TARGET INTERNATIONALLY ZERO

connected intelligence that bridges With its products the gap between people, data and As a leading agri-food and services already technology in agriculture. More solutions provider, recently, we announced Kilkenny, available in 65 Ireland as the location of a new AB Agri wants to countries, AB Agri Technology Centre for Intellync. ensure responsible Due to open in late 2020, this new is embarking on an Technology Centre will develop new production for its generations of technology solutions ambitious international that improve farm performance customers across growth strategy to and drive continuous improvement the agri-food industry across agricultural supply become a leading and chains globally. and strengthen its influential force in the We aim to expand our global leadership in feed operations through the creation of global agri-food sector. operational hubs in our key overseas product quality and markets. These hubs will enable health and safety. With a growing global population AB Agri to roll out its products and estimated to require up to 70% technology platforms, grow sales To drive this, AB Agri has launched more food by 2050, and climate and market share in new countries. change and extreme weather ‘Target Zero’. This programme conditions adversely impacting food In south east Asia we have set up promotes and focuses on the production, the agri-food industry a commercial entity to serve business’ existing zero harm policy, is facing significant challenges. Vietnam. In central and eastern to ensure no harm comes to To help address this, AB Agri is Europe, our acquisition in 2019 of its people, products and the developing better technologies a specialist baby animal nutrition environments in which it operates. and exploiting the applications business and production plant AB Agri has established a set of clear of data and digitalisation, which in Poland will accelerate the Target Zero values and a leadership will improve the productivity and establishment of an AB Agri hub development programme in efficiency of its global supply from which to grow new business. accordance with these, which have chains, and the production of food. This builds on our existing presence been rolled out across the group. in the region with our neonates At the start of 2019, AB Agri nutrition business, AB Neo, This commitment to Target Zero established a new entity, Intellync, in the Czech Republic and goes beyond employees, sites, which brought together our existing demonstrates a belief in the future operations and logistics. Its remit businesses AB Sustain and Agridata. of livestock farming in Poland and spans the breadth of AB Agri’s Intellync’s goal is to deliver the surrounding countries. influence, to its hauliers, contractors, third-parties and suppliers across the world. One example of this is the haulier safety day that AB Agri recently led, which was held for all hauliers working on behalf of its businesses, with a theme of Target Zero and focused on the importance of transport safety. Instrumental to the project’s success so far has been the formation of a global supply-chain community in identifying collaborative best practices. This is particularly important for AB Agri’s ambitious international growth plans, by helping to build consistency and pace of improvement throughout its operations when integrating newly acquired international businesses.

Annual Report and Accounts 2019 Associated British Foods plc 33 Operating review | Ingredients

ABOUT INGREDIENTS

Our Ingredients businesses supply yeast, bakery and specialty ingredients to food and non-food manufacturers. AB Mauri • AB Enzymes is an industrial biotech AB Mauri has a global presence in company specialising in enzymes. bakers’ yeast with significant market Their applications include bakery and positions in the Americas, Europe and other foods and beverage segments, Asia. It is a technology leader in bakery animal feed, technical and detergent ingredients, supplying bread improvers, markets; dough conditioners and bakery mixes • ABITEC supplies specialty lipids and to industrial and craft bakers across surfactants for the pharmaceutical, the globe. nutritional and specialty chemical The business employs experts who industries; have extensive knowledge and • Ohly produces a range of yeast understanding of the yeast and bakery extracts and culinary seasoning ingredients business, the equipment, powders specially developed to the processes and the raw material. In enhance the taste of customer’s addition to bakers’ yeast, AB Mauri also food recipes; supplies yeast products to producers of alcoholic beverages and bioethanol. • PGP International produces specialty flours and extruded ingredients for ABF Ingredients use in a wide range of nutritional ABF Ingredients is a specialty products such as health bars; and ingredients world leader, offering innovative, differentiated and value- • SPI Pharma develops and supplies added products and services to the pharmaceutical excipients and food, nutrition, pharmaceutical, animal antacids for global pharmaceutical feed and industrial sectors. Its producers. ingredients are an essential part of products that are equally likely to be found in the kitchen and medicine cabinet as in the laboratory. It comprises a group of companies operating worldwide under their own identities, serving customers in more than 50 countries from production facilities in Europe, the Americas and India:

34 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategicStrategic REPORT Report report

52 plants in production for AB Mauri

7,000 employees

Ingredients strategy Our Ingredients businesses are dedicated to understanding the key requirements of their customers and their end-use markets in order to ensure a relevant supply of ingredients, systems, products and technology that create value. They develop partnership relationships with customers to achieve a genuine understanding of their products, formulations, equipment and processes and the market environment in which the products are sold. They aim to grow by providing outstanding customer service backed by a high level of investment in technology, innovation, research and development. Each business has its own strategic model that determines an appropriate balance of emphasis across the full range of potential sources of competitive advantage: innovative and distinctive products; an efficient and proprietary set of production processes; and compelling customer propositions comprising a blend of product performance and customer specific services.

Annual Report and Accounts 2019 Associated British Foods plc 35 Associated British Foods plc 35 Ingredients | Operating performance

YEAST, BAKERY AND SPECIALTY INGREDIENTS SUPPLIED GLOBALLY

Revenue Revenue Ingredients revenues were 4% ahead In August we signed an agreement of last year at constant currency. to form a yeast and bakery ingredients £1,515m £3,521mAdjusted operating profit, however, joint venture in China with Wilmar declined by 6% at constant currency, International. This will combine our 2018: £1,459m 2018: £3,420m which was driven by a significant fall existing activities in China and technical

Actual fx: +3%in the result for AB Mauri Argentina expertise with their extensive sales and Actual fx: +4% Constant fx: +2%as a result of a challenging economy, distribution capability. Completion is Constant fx: +4% increased competition, and the adoption subject to the receipt of regulatory of hyperinflationary accounting approvals. The joint venture will build a Adjusted operating profit Adjusted operatingunder IAS profit 29. major yeast plant to be co-located with Wilmar’s food processing plant in north AB Mauri sales increased but east China. During the year we also £136m £380mprofits were reduced mainly as a acquired Italmill, a supplier of specialist 2018: £143m 2018: £335m result of the Argentina operations. bakery ingredients from a well-invested Trading in North America was strong Actual fx: +13% facility in the north of Italy. Actual fx: -5% driven by product innovation in bakery Constant fx: +10% Constant fx: -6% ingredients and the increase in yeast At ABF Ingredients, the enzymes prices to recover higher input costs. business continued to grow its sales Trading was also ahead in Brazil to the bakery and other food markets. Adjusted operating Adjusted operating where we continued to benefit from SPI Pharma delivered sales growth in profit margin profit margin the growth of industrial bakeries. pharmaceutical excipients and industrial We continued to invest in technology catalysts. Ohly, our yeast extracts and 9.0% 10.8% and product innovation and a new seasoning powders business, made 2018: 9.8% 2018: 9.8% bakery toppings facility in Pederneiras, good progress in the food and health Brazil, a bakery ingredients factory in markets and improved margins through Dongguan, China and an extended cost reduction. PGPI, our US protein Return on average Return on averagetechnology centre in St Louis, US extrusion business, delivered strong capital employed capital employedwere opened during the year. sales growth of plant protein crisps and took further share in the expanding US 15.9% 27.4% market for nutrition bars and healthier snacks, cereals and baked items. 2018: 18.1% 2018: 25.9%

36 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report In action

OLD TRADITIONS NEW INNOVATIONS

Scrocchiarella®: innovating ‘Baking’ the future In May 2019, AB Mauri through tradition “Italmill’s success is founded in acquired Italmill, a Italmill anticipated the Italian the expertise and dedication of its consumer’s growing preference for people. Handing over this valuable leading player in the healthy, high quality, snacking and heritage to ABF will ensure the Italian bakery on-the-go food with Scrocchiarella continuation of the nurturing mixes and par-baked frozen bases environment that preserves and ingredients industry. for an authentic Roman Pizza. develops our talents, and creates additional value for the future”, Scrocchiarella is made from a unique Italmill began in 1901 as Molini commented Filippo Ferrario, the combination of selected traditional Besozzi Marzoli, and by 1911 the previous owner who continues as flours, sourdough and natural company had built one of the most a director of the business. ingredients. The key ingredient is advanced milling plants in Italy. sourdough, which gives the final Building on ABF’s solid track record Italmill developed over the years product a crunchy crust, open crumb of successful acquisitions, we plan to into a successful, fourth generation structure, superior flavour and a unlock the growth potential of Italmill family-owned and managed bakery memorable aroma. in international markets, building ingredients company based in value through the combination of northern Italy. Since launching the traditional Italmill’s product portfolio and recipe, the Scrocchiarella range has Italmill’s heritage of tradition and AB Mauri’s technological expertise been enriched with whole wheat, innovation brings to AB Mauri a and commercial reach. seeds and Venus black rice. wealth of expertise in sourdough, pizza and pastry mixes, flour mixes and frozen technologies.

Annual Report and Accounts 2019 Associated British Foods plc 37 Ingredients | In action

CHANGE

38 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report

Ohly, our yeast-based specialty products business, is reshaping its food ingredients range in response to changing consumer demands.

Ohly produces flavour • Meat alternatives: low- or no-meat enhancements, such as yeast diets are now mainstream as more extracts and seasoning powders, people change their eating habits which are used to enrich the taste for reasons of health, principles or in a wide variety of leading food taste. The knock-on interest in products. In evolving our offering, meaty-tasting and functional selected focus areas for product ingredients presents a significant development are: opportunity for natural yeast- based ingredients. • Salt reduction: consumers increasingly understand the impact Market-driven on health of using too much salt Two non-food market segments also and want products that contain present significant opportunity for less salt but still taste great. We Ohly – biotechnology and animal have developed a toolbox of health. In biotech, customers ingredients that allow food demand higher productivity, and our producers to reinforce the taste scientific ability to select the right profile of their recipes by using our nutrient combination delivers this. natural yeast-derived ingredients. In animal health, farmers are seeking These ingredients often also to reduce the use of antibiotics and deliver distinct taste experiences our understanding of yeast cell like umami or roasted notes; structures allows us to provide ingredients with proven immune • Authentic, ethnic flavours: the stimulation effect, reducing the need rising popularity of once-niche for antibiotics in the first place. regional flavours is creating global customer demand for exciting The pace of change across different seasonings, a field where our markets requires Ohly to change too. PRODRY® culinary powders excel. And that’s what the team has kicked Ohly uses its product and off, with the establishment of formulation expertise to turn liquid dedicated teams to focus on these or viscous products like mustard specific market segments. into dry powders that continue to deliver the authentic flavour into a dry application such as snacks; and

Annual Report and Accounts 2019 Associated British Foods plc 39 Operating review | Retail

ABOUT RETAIL

Primark is one of the largest clothing retailers in Europe and 2019 marks its 50th year.

It has 373 stores and employs and the US. 2006 saw Primark’s first 78,000 people in the UK, Republic foray into continental Europe with the of Ireland, Spain, Portugal, Germany, opening of a store in Madrid and it the Netherlands, Belgium, Austria, now operates from 15.6 million sq ft France, Italy, Slovenia and the US. of selling space across 12 countries. It was founded fifty years ago in the With a unique combination Republic of Ireland where it continues of the latest fashion and lean to trade as Penneys. operations, Primark offers customers Primark’s organic growth has been quality, up-to-the-minute fashion mainly achieved through increased at value-for-money prices. Buying selling space. Investment in buying, and merchandising teams travel merchandising and our success in internationally to source and buy constantly refreshing its stores ensures garments that best reflect each they remain exciting places to shop. season’s key fashion trends. Primark’s The increase in selling space has been range includes womenswear, driven by capital investment in freehold lingerie, childrenswear, menswear, and leasehold properties as they have footwear, accessories, hosiery, become available, first on the high beauty and homeware. streets of the UK and Ireland, and more recently on the high streets and in the shopping centres of continental Europe

40 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report

373 stores

78,000 employees

12 countries

Retail strategy Primark offers great value for money which it achieves by: incurring minimal advertising costs, instead relying on its customers ‘doing the talking’ about its products; buying in vast quantities and passing on the cost savings to customers; keeping overheads to a minimum but investing in state-of- the-art logistics to enable its stores to replenish stocks quickly; and not compromising its high-quality standards, rigorously testing products at the various stages of production. In the world of fashion it is critical that, once a style is seen on the fashion show catwalk, it reaches the stores as quickly as possible. It can take as little as six weeks from initial design concept to being available on shelf, and merchandise is sourced from all corners of the globe. Although Primark does not own the companies or factories that produce its merchandise, it recognises its responsibility to the workers in those factories, and to its customers, to ensure that its products are made in good working conditions.

Annual Report and Accounts 2019 Associated British Foods plc 41 Retail | Operating performance

QUALITY FASHION AT VALUE-FOR-MONEY PRICES

Revenue Sales at Primark were 4.2% ahead of contributions from our new stores last year at actual exchange rates and in Bordeaux, Seville and Ljubljana £7,792m 4.1% ahead at constant currency, driven exceeded our expectations. Like-for-like by increased selling space partially sales fell by 2.9%, driven by a weak 2018: £7,477m offset by a 2.0% decline in like-for-like performance in Germany where a new Actual fx: +4% sales. Operating profit margin increased managing director is now in role and is Constant fx: +4% to 11.7% from 11.3% and, as a leading a number of initiatives which consequence, adjusted operating profit include targeted local marketing was 8% ahead. campaigns and the reduction of selling Adjusted operating profit space in some stores. Excluding Primark performed well in the UK as we Germany, like-for-like sales in the continued to deliver a significant gain in Eurozone fell by 1.1% but we note an £913m market share, with sales growth of improving trend which delivered positive 2018: £843m 2.5% driven by a strong contribution like-for-like sales in the final quarter. from new selling space. Like-for-like Actual fx: +8% Full year like-for-like sales growth was sales declined by 1.0% but outperformed Constant fx: +8% achieved in Spain, Portugal, France a weak total clothing, footwear and and Italy. accessories market which includes online. We have been encouraged by Our US business delivered strong Adjusted operating our customers’ reaction to our new sales growth which, coupled with profit margin store in Birmingham High Street which lower operating costs, resulted in a showcases our new food and beverage significantly reduced US operating 11.7% and beauty services in addition to our loss. The sales increase was driven by 2018: 11.3% full product range. like-for-like growth and excellent trading at the Brooklyn store, which opened last Sales in the Eurozone were 4.8% ahead summer. The selling space reduction in of last year at constant currency, with Return on average three stores has successfully established excellent sales growth in Spain and capital employed a profitable contribution in each store. France and strong performances in Italy The positive reception by US consumers and Belgium. Over the year selling to Primark, combined with our profitable 28.9% space increased by 8% and the store model, gives us confidence for 2018: 28.2%

Year ended 14 September 2019 Year ended 15 September 2018 # of stores sq ft 000 # of stores sq ft 000 UK 189 7,449 185 7,125 Spain 46 1,850 45 1,764 Germany 30 1,830 27 1,686 Republic of Ireland 37 1,085 37 1,087 Netherlands 20 971 19 902 France 15 776 13 649 US 9 470 9 507 Portugal 10 348 10 348 Belgium 7 372 6 292 Austria 5 242 5 242 Italy 4 203 4 203 Slovenia 1 46 – – Total 373 15,642 360 14,805

42 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategicStrategic REPORT Report report

further expansion in the US market. Retail selling space increased by Two further US stores will open in the a gross 0.9 million sq ft this year, new financial year, at American Dream, with 14 new store openings. Four the retail and entertainment complex in stores were added in the UK, three New Jersey which will now open in in Germany, two in Spain, two in New store openings: spring 2020, and Sawgrass Mills, Florida France and one each in Belgium, UK: Hastings, Bluewater, Belfast in summer 2020. We have now signed the Netherlands and our first store Donegall Place, Milton Keynes the lease for a new store in Fashion in Slovenia. We relocated to new Spain: Torre Sevilla, Almeria District, Philadelphia and, as previously premises in Birmingham High Street Belgium: Bruxelles Chaussée advised, have exchanged contracts on which, at 160,000 sq ft, became D’Ixelles a store in State Street, Chicago. our largest store. The smaller of The Netherlands: Utrecht our two stores in Oviedo, Spain, We were particularly pleased to have Slovenia: Ljubljana was closed and the size of our reached a milestone 20 million followers France: Toulouse, Bordeaux store in the King of Prussia mall in across all our social media channels, Germany: Berlin Zoom, Pennsylvania was reduced. This brings driven by a combination of exciting Wuppertal, Bonn the total estate to 373 stores trading product ranges, innovative social media from 15.6 million sq ft compared to campaigns and customer-focused Relocations: 14.8 million sq ft a year ago. celebrity collaborations. We believe UK: Harrow, Birmingham High our engaging content across these In the next financial year, we are Street, Newtownabbey social platforms attracts substantial planning to add a net 1 million sq ft customer numbers to our stores. of additional selling space, weighted mainly to the second half. We expect During the second half, Primark’s to open 19 new stores together with a buying, merchandising, design, number of relocations and extensions, sourcing and quality functions, while selling space will be reduced at a previously located in Reading and small number of German stores. France Dublin, were consolidated in Dublin. and Spain will see the most space This will further enable one global added, and the major new stores will product range for our customers, the include Paris Plaisir, Lens and Calais delivery of efficiencies and support our Cité Europe in France, Milan Fiordaliso expansion into international markets. in Italy, Barcelona Plaza de Cataluña The first half operating margin of and Seville Lagoh in Spain and Trafford 11.7% was well ahead of the same Centre in the UK. Our first store period last year of 9.8%, driven by in Poland will open in Warsaw in a weaker US dollar on contracted the spring, taking Primark to its purchases, better buying and tight thirteenth country. stock management. Margin in the second half exceeded our expectations at 11.7%. This was lower than the second half in the prior year, with the effect of a stronger US dollar on purchases substantially offset by a low level of markdowns and better buying. The strengthening of the US dollar during this year has increased the cost of goods for the first half of next year which will result in a margin decline in the first half. The sterling exchange rate is currently extremely volatile and affects the cost of goods for the second half next year. We anticipate achieving significant mitigation from reduced materials prices, the favourable effect of exchange rates in sourcing countries, better buying and a programme to reduce operating costs. At current exchange rates, our expectation for the full year margin next year has improved to be only a small reduction on that achieved this year.

Annual Report and Accounts 2019 Associated British Foods plc 43 Retail | In action

Sunglasses Part of the Kem Ibiza photo shoot

Yellow dress Part of the Stacey Soloman collection

44 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report

Celebrity partnerships Primark has a strong track record of teaming up with stars to develop and publicise co-branded ranges. In line with our strategy, we focus on high-profile influencers linked to a wide range of consumer passions – notably, health and beauty, video gaming, TV and music. This means we not only launch great products that appeal to all sections of society but we also connect with our partners’ huge fan bases. This has a significant impact on Primark media coverage and sales. Love Island winner Kem Cetinay, for example, launched his inaugural Primark range – a 16-piece holiday collection – in May. The Primark Man x Kem photo shoot in Ibiza made media headlines, with the combined Instagram reach of Kem and his two celebrity travelling companions topping 10 million. And when one of our influencers, Ninja – a US video game player with 22 million followers – posted an image of himself wearing a Primark Fortnite gaming t-shirt he earned an extraordinary 498,000 likes. Strong fan-bases INFLUENCER We carefully select the influencers with whom we collaborate. They need Celebrity partnerships to be genuine Primark advocates that consumers can relate to easily, and are delivering stellar whose lives complement our brand and returns for Primark. reputation. They must also have strong credibility with an existing base of engaged followers. Stacey Solomon is widely admired and respected for her talent and down-to- earth approach. The singer and TV personality’s first Primark range was a sell-out with wide media coverage, Ninja Water Bottle including 650 social media posts that Part of the Ninja reached 50 million people. Her second collection range reached stores in October 2019. We are now expanding Primark’s network of influencers to ensure we cover all our target audiences and markets. Our choice of Kem as Primark’s first male brand ambassador supports our strategy of expanding our base among young men. And we are building on our strong body of UK influencers through further range collaborations with popular bloggers in Spain, Germany and Austria.

Annual Report and Accounts 2019 Associated British Foods plc 45 Retail | In action

160,000 sq ft size of Birmingham High Street store

46 Associated British Foods plc STRATEGICStrategic REPORT report

DESTINATION SHOPPING

Primark’s stunning new Birmingham store builds on the brand’s reputation as the shopping destination of choice by offering all you could want for a great day out.

New experiences in store Birmingham High Street, the UK’s 187th and the world’s biggest Primark, offers an outstanding range of fashion, beauty and homewear over five floors. However, the 160,000 sq ft city centre location offers much more than phenomenal shopping. As research shows that consumers increasingly prioritise shared ‘experiences’ over physical purchases, and with the high street facing a fierce challenge from online retailers, this store provides a bundle of fun things to do and share. Homage to home In paying homage to Birmingham, As well as shopping, consumers the store also helps consumers feel can get their hair cut, play interactive at home. At the entrance, a large games in the Primark Café with Primark-blue sign proclaims Disney – one of four very different ‘Welcome Brum’ and, against a dining locations – enjoy a manicure, stylish interior that refers both to have a wet shave, print bespoke the city’s industrial heritage and t-shirts and have a magical time in contemporary design, word graphics Hogwarts Wizarding World. And spell out the essence of Birmingham, after that they can recharge as voiced in local vox pops. themselves, and their phones, in one of the comfortable seating Elements of the new store’s rich areas, complete with free wifi and offering are being woven into other water fountains. Primark locations. For example, like Birmingham High Street, further selected stores will get branded Primark cafés, beauty parlours, Disney baby shops and lighter, brighter, airier changing rooms. We have long aimed to make Primark stores must-visit destinations. By blending great experiences with unbeatable shopping, we continue to buck the trend and deliver rising sales on the high street.

Annual Report and Accounts 2019 Associated British Foods plc 47 Retail | In action

DRIVING FORWARD SUSTAINABLE COTTON

This year Primark This significant extension broadens The programme’s expansion the programme into China for the first comes amidst growing demand from announced a fivefold time, in addition to enrolling thousands customers for sustainable cotton expansion of its more farmers into the three-year training products. Primark first introduced programme in India and Pakistan. sustainably sourced cotton into one Sustainable Cotton This marks an important part of the of its most popular product lines – retailer’s ongoing commitment to women’s pyjamas – under its Primark Programme, with a minimising its impact on the Cares initiative in 2017. More than 14 commitment to train environment, improving livelihoods and million pairs of pyjamas have since been bringing more sustainably-sourced sold, in addition to more than three 160,000 independent cotton to customers at affordable prices. million pairs of jeans, and six million duvet covers and towels made with Primark started this programme in cotton farmers in sustainable cotton tracked through 2013 in India, working with agricultural the programme at no extra cost to the sustainable farming experts CottonConnect and local customer. The expansion into China and partners to train female farmers to use methods across three increased farmer numbers will enable less water and chemicals. By starting Primark to move one step closer to its of its key sourcing at the very beginning of the supply long-term ambition of using 100% chain, the cotton can be directly sustainably sourced cotton across its countries by the end traced from cotton farm through entire product range. of 2022. manufacture to delivery to Primark’s stores. This gives the retailer and its customers complete confidence in the source of the sustainable cotton used, its environmentally friendly credentials, and the positive impact on farmers’ livelihoods.

48 Associated British Foods plc Annual Report and Accounts 2019 STRATEGICStrategic REPORT report

We have been working with Primark since this programme was first launched in 2013. Not only are we materially changing the lives of farmers and their families in rural cotton communities, but by working closely with Primark and their supply chain partners we have been able to trace the cotton all the way from the farm into products – a challenging but important step towards increased supply chain transparency.

Alison Ward, CEO at CottonConnect

Annual Report and Accounts 2019 Associated British Foods plc 49 Financial review

Our business model remains unchanged and our balance sheet remains robust on the adoption of IFRS 16 next year.

John Bason Finance Director

Group performance The weakening of sterling this year, with Wilmar International, described in Group revenue increased by 2% particularly against the US dollar, further detail below. Taking this into to £15.8bn and adjusted operating resulted in a translation benefit of account, statutory profit before tax was profit was 1% higher at £1,421m. In £9m. The movement in the US dollar down 8% to £1,173m. On our adjusted calculating adjusted operating profit, the exchange rate has a transactional effect basis, which excludes these items, profit amortisation charge on non-operating on Primark’s largely dollar-denominated before tax rose by 2% to £1,406m. intangibles, profits or losses on disposal purchases but taken for the year as a Acquisitions and disposals of non-current assets, transaction costs, whole the effect was broadly neutral, In September 2018 we acquired Yumi’s, amortisation of acquired inventory fair with a favourable effect in the first half an Australian producer of premium chilled value adjustments and exceptional offsetting a negative effect in the dips and snacks. AB Agri acquired a small items are excluded. second half. manufacturer of piglet starter feed based The income statement includes Next year we expect the weakness of in Poland. Our Ingredients business exceptional items of £79m this year. sterling during this financial year to have disposed of its underutilised torula yeast Following the termination of our a negative transactional effect on the facility in Hutchinson, Minnesota and largest private label bread contract in Primark margin in the first half but, at acquired Italmill, a supplier of specialist December 2018, the carrying value current exchange rates, a minimal effect bakery ingredients based in the north of of the assets of the Allied Bakeries in the second half. Italy. On 6 September 2019 ACH in the business was no longer supported by US acquired Anthony’s Goods, a Net finance expense reduced from last our forecasts of its discounted future California-based blender and online year following the maturity of $310m of cash flows and a non-cash impairment marketer of speciality baking ingredients. private placement senior notes in March charge of £65m has been recognised. and lower debt in high interest markets. In August we signed an agreement Following a High Court ruling regarding The increase in other financial income to form a yeast and bakery ingredients the equalisation of Guaranteed reflected the increase in the surplus of joint venture in China with Wilmar Minimum Pensions in October 2018, our defined benefit pension schemes International, with completion subject to a pension service cost of £14m between the 2017 and 2018 year ends. regulatory approval. The joint venture will has been taken for members of the see us build a major new low-cost yeast company’s defined benefit pension Losses on disposal of businesses were plant in the north east of China and will scheme for service between 1990 £94m, higher than last year, and mainly combine AB Mauri’s existing commercial and 1997. On an unadjusted basis, comprised an impairment charge to the activities and technical expertise in operating profit was 5% lower than assets of AB Mauri’s businesses in China with Wilmar’s extensive sales and last year at £1,282m. China which are affected by the distribution capability. As a consequence, formation of the proposed joint venture

50 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

a non-cash impairment charge of £88m Balance sheet paid in the following accounting period. against AB Mauri’s assets in China has Non-current assets of £8.2bn were Changes made by HMRC which come been included in losses on closure of £0.2bn lower than last year driven by into effect next year will result in all of businesses in the income statement. a decrease in employee benefits the tax due for a financial year being assets as the surplus in the UK defined paid in that financial year. Accordingly, Taxation benefit pension scheme declined. the group’s tax cash outflow in 2020 We recognise the importance of The investment in property, plant and will be higher than 2019. complying fully with all applicable tax equipment and intangible assets laws as well as paying and collecting the Financing was in line with last year, with capital right amount of tax in every country in The financing of the group is managed expenditure and acquisitions made which the group operates. Our board- by a central treasury department. The in the year offset by depreciation adopted tax strategy is based on seven group has total committed borrowing and impairments. tax principles that are embedded in the facilities amounting to £1.6bn, which financial and non-financial processes Average working capital as a percentage comprise: £0.3bn of US private and controls of the group. This tax of sales increased from 7.2% last year placement notes maturing between strategy is available on the group’s to 7.8% this year, while working capital 2021 and 2024, with an average fixed website at: www.abf.co.uk/documents/ at the year end was also higher than last rate coupon of 4.4%; £1.2bn provided pdfs/policies/abf_tax_strategy.pdf. year due principally to higher inventories under a syndicated, revolving credit at Primark. Net cash at the year end facility which matures in July 2021; and This year’s tax charge on the adjusted was £936m compared with net cash £0.1bn of local committed facilities in profit before tax was £302m at an at the end of last year of £614m Africa. At the year end, £412m was effective rate of 21.5% (2018 – 21.3%). reflecting the strong operating cash drawn down under these committed We expect next year’s adjusted flow in the year. facilities. The group also had access to effective tax rate to increase slightly £564m of uncommitted credit lines from this level. The group’s net assets increased by under which £162m was drawn at the £0.3bn to £9.6bn. Return on capital The total tax charge for the year of year end. Cash and cash equivalents employed for the group which is £277m benefited from a credit of totalled £1.5bn at the year end. calculated by expressing adjusted £25m (2018 – £35m) for tax relief on operating profit as a percentage of the Pensions the amortisation on non-operating average capital employed for the year, The group’s defined benefit pension intangible assets, amortisation was lower this year at 19.3% compared schemes were in surplus by £33m at of acquired inventory fair value with 20.1% last year, mainly driven by the year end compared with a surplus adjustments, profits on disposal of the reduction in the return on capital at last year of £435m. The UK scheme non-current assets, losses on disposal AB Sugar. accounts for 91% of the group’s gross of businesses and exceptional items. pension assets. The decline in long-term Cash flow Earnings and dividends UK bond yields during the year, which Net cash inflow from operating activities Earnings attributable to equity are used to value defined benefit increased slightly to £1,509m. Capital shareholders in the current year were pension obligations for accounting expenditure reduced compared to the £878m and the weighted average purposes, had a material impact on the prior year with lower spend at Primark number of shares in issue during the discounted value of pension liabilities. this year reflecting the planned later year, which is used to calculate earnings The lower pension surplus will result in phasing of next year’s store openings per share, was 790 million (2018 – 790 reduced interest income next year in and the consequent timing of store fit million). Given the loss on closure of respect of defined benefit pensions, and out costs, while lower spend in the businesses and exceptional items is reported in other financial income. food businesses followed the recent charged this year, earnings per ordinary completion of some major capital The most recent triennial valuation of share were 13% lower than last year at projects. £12m was realised from the the UK scheme was undertaken as at 111.1p. Adjusted earnings per share, sale of property, plant and equipment. 5 April 2017 which determined a surplus which provides a more consistent The net cash outlay on acquisitions was of £176m on a funding basis. As a result measure of trading performance, £100m, including debt assumed, and there is no requirement to agree a increased by 2% from 134.9p to 137.5p. related principally to the acquisitions of recovery plan with the trustees. The interim dividend was increased Yumi’s and Anthony’s Goods. The charge for the year for the group’s by 3% to 12.05p and a final dividend Tax paid in the year amounted to defined contribution schemes, which has been proposed at 34.3p which £269m. Generally in the UK, 50% of was equal to the contributions made, represents an overall increase of 3% the corporation tax due in respect of an amounted to £80m (2018 – £77m). This for the year. The proposed final dividend accounting period is payable in that compared with the cash contribution to is expected to cost £271m and will period with the remaining 50% being the defined benefit schemes of £50m be charged next year. Dividend cover, (2018 – £39m). on an adjusted basis, remained at 3.0 times.

Annual Report and Accounts 2019 Associated British Foods plc 51 Financial review

New accounting standards The vast majority of the lease liabilities There is no change to overall net cash The accounting policies applied relate to Primark’s leasehold store flows and while this is a significant during this financial year, and details estate. The effect on our food change in financial reporting, our of the impact of adoption of new businesses, where many of our business model remains unchanged accounting standards in future financial properties are owned under freeholds, and our balance sheet remains robust. years, are set out in the Significant is much less significant. Effects on Primark metrics: accounting policies. We will transition using the ‘modified • Primark’s margin would have During this financial year we adopted retrospective’ approach, under which increased from 11.7% to 12.5% due IFRS 9 Financial Instruments and the comparative period is not restated. to higher adjusted operating profit, IFRS 15 Revenue from Contracts with We have set out below our estimates of with store rental expense replaced Customers with no material impact selected 2019 financial information, on with a depreciation charge on arising on adoption. On transition, a pro forma IFRS 16 basis, in order to right-of-use assets. comparatives were not restated. Under illustrate the effects on the income IFRS 15, Grocery revenues would have statement and key metrics for Primark. • Primark’s return on capital employed reduced by £31m last year as certain would have decreased from 29% to Effects on the group financial payments to customers which were 15%, as right-of-use assets are now statements and metrics: previously expensed as incurred would included in capital employed. instead have been deducted from • The balance sheet would have shown John Bason revenue. This reduction represents net debt of £2.7bn. 0.9% of revenue in the Grocery Finance Director segment and would have had the effect • Gearing (expressed as debt as a of increasing Grocery operating margin proportion of debt plus equity) would by 8 basis points last year. This had have been 31% at the balance sheet no effect on the timing or amount of date. operating profit. • Adjusted operating profit would have IFRS 16 Leases increased by £64m, with rental The group will adopt IFRS 16 Leases expense replaced by depreciation in the 2020 financial year, which is the of right-of-use assets. most significant accounting change for • Interest expense would have our group for many years. It affects increased by £90m of interest many aspects of the group’s financial charged on lease liabilities. statements, including operating profit, earnings per share and net debt, as well • Interest cover would have been as return on capital employed. 14 times. The effects of adopting IFRS 16 at our • Adjusted profit before tax would transition date of 15 September 2019 have reduced by £26m. are set out in the Significant accounting • Adjusted earnings per share would policies section. We will recognise lease have reduced by 2% from 137.5p liabilities at transition of £3.6bn and to 134.8p. right-of-use assets of £3.1bn.

52 Associated British Foods plc Annual Report and Accounts 2019 Strategic report Responsibility

LIVING OUR VALUES

RESPECTING EVERYONE’S A great deal has changed since we were established more than 80 years ago, but Dignity one thing has remained constant: our commitment to operating responsibly and ethically at all times.

Our purpose is to provide safe, affordable food and clothing that offers great value for money. In doing these things well, we know we are doing good every day by helping to make millions of people’s lives better.

ACTING WITH Integrity

Our values Respecting everyone’s dignity We strive to protect the dignity We live and breathe our of everyone within and beyond values through the work we our operations so that the people do every day. They guide our who make our products feel safe, everyday behaviour and help respected and included. us to articulate how we deliver Acting with integrity long-term benefits for our people, We proudly promote and protect suppliers, neighbours, customers a culture of trust, fairness and and the environment. accountability that puts ethics first. We have – for the first time – set From farms and factories right through to our boardroom, we are out a group-level articulation PROGRESSING THROUGH of the values expressed by our committed to embedding integrity individual businesses. These into every action. are not new values recently Progressing through collaboration discovered, but the underlying We work with others to leverage threads which run through our global expertise for local Collaboration every interaction at Associated good. Through collaboration British Foods and its businesses. with our stakeholders, including non-governmental organisations These do not replace each (NGOs), we’re working to create business’ own values, but rather safer, fairer working environments consolidate and summarise the and promoting thriving, resilient most common themes found communities. across the group. We developed them by distilling how our Pursuing with rigour own businesses describe and From the products we make, to implement their values. By the way we preserve the resources collating the values from 22 of our we rely on and support the people own businesses, we were able to we work with, we are always use language that is reflective of learning and incorporating better PURSUING WITH our businesses’ own words. practices. Across our businesses, we are partnering with industry experts to help us work towards the highest standards. Rigour

Annual Report and Accounts 2019 Associated British Foods plc 53 Responsibility | Reporting and stakeholders

REPORTING AND STAKEHOLDERS

Non-Financial Reporting There is also further information Human rights Requirements on our website at www.abf.co.uk/ We engage with a number of The Companies Act 2006 requires the responsibility. Here you can find our organisations on issues around human Company to disclose certain non- previous corporate responsibility reports rights, including the Corporate Human financial reporting information within the and updates, our Modern Slavery and Rights Benchmark and KnowTheChain. annual report and accounts. Accordingly, Human Trafficking Statement, our 2019 People the disclosures required in the Responsibility Report and our 2019 We devote hundreds of thousands of Company’s non-financial information ESG Appendix. hours to training our people, as well as statement can be found on the following Engaging with external stakeholders millions of pounds to keep them safe. pages in the Strategic report (or are Our scale employing 138,000 people We were pleased to be one of 34 incorporated into the Strategic report by and with operations in 52 countries responding companies to the pilot reference for these purposes from the across the world mean that our activities phase of the Workforce Disclosure pages noted): matter to many people. Our reporting is Initiative and have now submitted • Information on our employees intended to provide our wide range of our response to the third survey. (pages 55 and 56) stakeholders with an accurate picture of Social our approach to addressing both social • Information on diversity We engage with a wide range of NGOs and environmental challenges. (pages 56 and 57) on social matters, primarily at the level Our businesses routinely engage with of our individual businesses due to the • Information on our Anti-bribery customers, relevant regulators and often local and subject-specific nature of and Corruption Policy (page 57) industry bodies. At a group level we also these engagements. We have outlined • Information on our Whistleblowing engage with a variety of stakeholders many of these engagements in our Policy (page 57) through a range of methods. Some of responsibility report, Living our values. these are noted below. • Information on our approach to human rights (page 58) Environment, Social and Governance (ESG) assessments • Information on social matters Investor interest in ESG-related issues is (pages 58 and 59) growing. We are engaging more than • Information on our Environment ever with both individual investors and Policy (pages 60 and 61) investor-related ESG research agencies. Despite publishing and providing * Further information on these accurate and wide ranging data we can also be found in the 2019 find that with both investors and ESG Responsibility Report research agencies, we are regularly Further Responsibility and explaining that our business model does Review Living our values online: ESG Disclosures not fit neatly into a survey or standard www.abf.co.uk/responsibility In recent years we have published a question set. As such, our first ever ESG full corporate responsibility report Appendix is published in response to these increasing requests for performance every three years with annual updates. We engaged EY to provide limited assurance This year our responsibility report has data and is an example of the growing over the reliability of 15 environment and safety evolved into two separate documents. importance of providing a wide range of key performance indicators (KPIs) for the year publicly available ESG data. ended 31 July 2019. These are marked with the The first is a responsibility report Living symbol ∆ in these pages. our values which provides an overview Environment of our operations and material impact: Every year we share our performance investing in our people; supporting in addressing climate change, water and society and strengthening our supply deforestation risks via CDP, and request chain; and respecting the environment. that our reports are publicly available on The second is an environmental, social their website, www.cdp.net, as well as and governance, ESG Appendix that our own. provides a greater depth of data to complement the responsibility report and provide an ‘at a glance’ for our recent historical non-financial performance.

54 Associated British Foods plc Annual Report and Accounts 2019 Strategic report Responsibility | Our people

INVESTING IN OUR PEOPLE

We prioritise the safety and well being of all Our safety performance this year Loss of life as a result of our activities our employees and those who work with us. is unacceptable. This year there were We also want them to have every opportunity to no work-related fatalities ∆. However, we recognise that there are areas of develop and progress. As a diverse, decentralised high safety risk in our businesses and we continuously work towards our goal organisation, our businesses operate in different of zero-harm in our workplaces and global contexts, so they are given the flexibility activities. Our goals remain to eliminate fatalities and continuously improve our to manage these issues at a local level. safety performance. This year, 76% of our factories Whilst we offer our businesses Safety and stores achieved a year’s operation significant autonomy when it comes The health and safety of our employees, without any Reportable Injuries and to our people, we have a clear set of contractors and those affected by our 67% did not have a Lost Time principles that are common to all: activities is a priority. All our businesses Injury (LTI). invest in programmes that drive • we provide a safe and healthy continuous improvements in processes In 2019, LTIs among employees workplace; and standards for health and safety. decreased by 18% from 833 last year • we offer equal opportunities in We also encourage and empower our to 682 ∆. This equates to an LTI rate of recruitment, career development people to report and address concerns 0.65% of our people experiencing an and promotion whatever their sex, so that everyone feels safe and secure injury that resulted in time off work. age, race, religion or sexual in their place of work. For contractors, the LTI rate for the orientation; year was 0.19%. There was also a 14% Our approach to safety decrease in Reportable Injuries to • we proactively support employees All our businesses must comply with employees from 663 in 2018 to 573 when pregnant or as new parents; Associated British Foods’ Health and this year. This equates to 0.54% of our Safety (H&S) Policy (www.abf.co.uk/ employees having a Reportable Injury. • we give full and fair consideration responsibility). We pursue this with to applicants with disabilities; the rigour across the group, and many A healthy workforce extends beyond training, career development and businesses supplement the group policy just managing health and safety promotion of disabled persons should, with additional policies of their own. Our risks. Our holistic approach includes as far as possible, be the same as that businesses also have tailored action programmes and initiatives that of other employees; plans to reduce the risk of injuries and proactively help employees to maintain • we do not tolerate sexual, mental or incidents in their own operations. and improve their overall wellbeing. Sound mental health is an essential part physical harassment in the workplace; We have many safety programmes in of this, and we continue to invest in place to encourage our people to take • we brief and engage with our programmes that raise awareness and responsibility for keeping themselves employees on a regular basis to provide practical assistance to and their colleagues safe. We deliver a create a common understanding of our people. the financial performance of the group wide range of training on high-risk areas and we seek our employees’ views to to ensure our people are equipped with Health and safety fines take them into account in decision robust safety knowledge. During 2019, we received six safety making; fines ∆ with a cost of £34,000 ∆ which fell within the reporting year. All the • we will take all steps necessary to businesses involved are required to minimise the risks to our staff and report to Associated British Foods’ customers’ safety. Safety and Environment Manager on when and how remedial actions are implemented. Number of employees Reportable Injury Rate

2019 138,097 2019 0.54% 137,014 0.63% 132,590 0.59% 129,916 0.47% 124,036 0.48%

Annual Report and Accounts 2019 Associated British Foods plc 55 Responsibility | Our people

Gender metrics Associated British Foods plc board directors are not included in the table below. We currently have two women and six men on the Company’s board.

Number Number Percentage Percentage Number of men of women of senior of workforce of senior in senior in senior management Total Men in Women in who are management management management who are employees* workforce workforce women roles** roles roles women Grocery 17,059 11,400 5,659 33% 750 443 307 41% Sugar 33,619 28,103 5,516 16% 334 242 92 28% Agri 2,525 1,810 715 28% 343 211 132 38% Ingredients 6,664 4,942 1,722 26% 576 425 151 26% Retail 77,787 20,289 57,498 74% 302 155 147 49% Central 443 269 174 39% 55 38 17 31% Total 138,097 66,813 71,284 52% 2,360 1,514 846 36%

* Full-time, part-time and seasonal/contractors. ** Includes directorships of subsidiary undertakings.

Investing in safety policies that foster diversity in 2019. Please note that more than half Our businesses invested over £29m in the workforce are developed and of our workforce is employed outside safety risk management over the last delivered locally. However we do also Great Britain and is therefore not 12 months. This includes investments in operate initiatives across Associated included in this analysis. improving working in confined spaces British Foods to promote diversity and In addition, and as required by the UK and at height, fire risk assessments and these include: Equality Act 2010 (Gender Pay Gap equipment upgrades, dust monitoring • a groupwide gender diversity task Information) Regulations 2017, we and air quality, improvements to lighting force which aims to ensure that there submit data for our relevant legal and safety signage and emergency first are no barriers to prevent talented entities to the UK Government through aid training. people from succeeding within the their website. A number of our Product Safety Company; businesses, such as Primark, AB Agri Maintaining food safety and quality and British Sugar, publish their own • senior and high-potential women are is a core part of our work, both across gender pay gap reports online and they invited to join ‘Women in ABF’, which the Group and within our individual can be found here: meets three times a year providing businesses. Each of our businesses a chance for networking, learning Online gender pay gap reports* has clear policies, procedures and and support for personal career www.primark.com/en/uk-gender-pay- the identification of individuals with development. The group currently report responsibility for food safety as part of has over 500 members; its Quality Management System. These www.abagri.com/responsibility/ systems are audited annually. For more • a Two-Way Mentoring Programme our-policies/gender-pay-report information see page 31 of the aims to grow the talent pipeline by www.britishsugar.co.uk/perch/ responsibility report. matching high-potential women with resources/18037-digital-gender-pay2pp- senior leaders around the group who Promoting Diversity a4revhr.pdf support their career development and Diversity is key to our culture, gives us broaden their business experience. * Please note 2019 data will be uploaded in advance a competitive edge and is one of the In return the senior leaders have the of 5 April 2020 ways we live our values every day. opportunity to learn about another In the main, the situation remains We strive to create diverse inclusive business or function, understand the unchanged since last year: at the working environments in which perspectives of women working median, women’s hourly pay rate is everyone’s dignity is respected and within them and develop their own 28% lower than that of men; and people are valued regardless of ethnicity listening and coaching skills; and women’s median bonus pay rate is or race, religion, gender, age, nationality, • managers being trained in 95.9% higher than men. sexual orientation or disability. ‘unconscious bias’, which aims Overall, the gender balance of For details on diversity as it relates to to build awareness and challenge Associated British Foods is fairly equal, the board of the Company, please see commonly-held myths around with women making up 52% of our total page 78. diversity. global workforce. However, women are The board is only one small part of our Gender pay gap reporting less well represented at the top – they total business and our commitment This year, for the third time, we have hold three quarters of the roles in the to promoting diversity extends across chosen to report on the gender pay gap lowest paid quartile yet only just over the entire workforce. Given our that relates to our total employee a third of the roles in the upper pay decentralised business model, many population in Great Britain as at 5 April quartile. This is partly influenced by the

56 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

fact that we have a large number of and we hold ourselves to higher A copy of the group’s Anti-Bribery retail staff on relatively low pay and a ethical standards. Our Anti-Bribery and Corruption Policy is available at: higher proportion of these are women. and Corruption Policy and related www.abf.co.uk/responsibility procedures apply to all our people. Gender balance at the top of the group Whistleblowing Policy They set out the behaviours and changes slowly because we have a Effective and honest communication principles required and contain guidance stable senior team, who are currently is essential if wrongdoing is to be dealt on issues such as engaging new mostly men. The presence of these with effectively. Our value of pursuing suppliers and other third parties, and the senior men in the bonus pool has a with rigour includes those engaged in giving and receiving of gifts, hospitality distorting effect on the mean bonus malpractice and we are serious in and entertainment. gap. The median bonus demonstrates a wanting to hear from colleagues about gap in favour of women. This difference Our approach to governance is to such examples. also reflects the varying composition of respect not simply the letter but also Our Whistleblowing Policy provides bonuses across our different businesses. the spirit of our policy and act always guidelines for people who feel they with integrity. To ensure the effective Our senior management population is need to raise certain issues in implementation of our policy and becoming more gender balanced year confidence. It is designed to protect procedures, each business has its on year which demonstrates the those raising a genuine concern, own designated Anti-Bribery and success of our various initiatives to in line with the Public Interest Corruption Officer and we have achieve no barrier to talent. In 2017 and Disclosure Act 1998 or other monitoring systems in place at various 2018, 23% of the people who report to jurisdictional legislation. levels within the group including global members of our executive committee risk assessments. In addition, all We have a whistleblowing telephone were women; in 2019 this figure was relevant employees are required to hotline in place, managed by Expolink, 24%, data we have shared with the complete an e-learning course on the which can be used by our people, or Hampton-Alexander Review. subject when they join the Company others, wherever they work in the We recognise that our approach and at regular intervals thereafter, and world. Any calls made to the hotline means we are unlikely to meet the those who work in higher risk roles are are disseminated to the senior 2020 expectations of the Hampton- also required to attend regular face-to- management team responsible for Alexander Review. We believe our face training. investigating issues raised. A thorough approach is right for our decentralised investigation is then undertaken and any We encourage our people to report structure and will continue to deliver an remediation agreed. any concerns that they may have and increasingly balanced senior team. provide a confidential and independent A copy of the group’s Anti-bribery and corruption policy whistleblowing service managed by Whistleblowing Policy is available at: Our values commit us to acting with Expolink (see following section) to www.abf.co.uk/responsibility integrity, meaning that compliance facilitate this. with relevant legislation is a given

Gender balance: Gender Pay Gap reporting women in the At the mean, women’s At the median, women’s At the mean, women’s At the median, women’s global workforce hourly pay rate is hourly pay rate is bonus pay rate is bonus pay rate is Share of workforce by gender 34.2% 28.0% 38.2% 95.9% lower lower lower higher than that of men than that of men than that of men than that of men A of men received of women received 20.9% a bonus 6.3% a bonus 48.0% Proportion of men and women in each pay quartile 52.0% Upper Upper middle Lower middle Lower

64.0% 67.3% 45.3% 19.3% 26% 36.0% 32.7% 54.7% 80.7% 74%

Gender pay and bonus gaps are calculated by comparing the mean (average) and median (central value in the data list) measures for women to that of men and identifying the percentage difference between the two.

Annual Report and Accounts 2019 Associated British Foods plc 57 Responsibility | Society and supply chains

SUPPORTING SOCIETY AND STRENGTHENING OUR SUPPLY CHAINS

Our scale and range of operations mean that our impact on society is sizeable. This impact is amplified through our supply chains and we take our responsibilities to use our influence with suppliers seriously.

Our values drive us to place a Respecting Human Rights be tackled most effectively by those considerable importance on the In recent years there has been a growth who best understand the local context. wellbeing of the communities we in legislation and reporting requirements We engage and collaborate with a broad operate in, the people we rely on in on businesses’ responsibility to respect range of interested and concerned our supply chains and the consumers human rights. We have welcomed this stakeholder groups, seeking to remain who buy our products. trend towards mandating greater sensitive to the risks of adverse human disclosure about human rights impacts. rights impacts resulting from our Progressing through collaboration Motivated by our company values, we products, services and operations. means leveraging our global expertise have consistently sought to provide our for local good. This collaboration can This year, we are pleased many of our stakeholders with relevant information be seen clearly in our supply chains businesses have engaged in activities about the work being undertaken across and local communities. Our work to that align with the internationally our businesses to promote and respect respect human rights is informed recognised framework of the United human rights. by internationally recognised good Nations Guiding Principles on Business practice, such as the United Nations Our Modern Slavery Statement and Human Rights (UNGPs): Guiding Principles on Business and can be found at www.abf.co.uk/ • Policy: As a group we have a suite Human Rights, and enhanced through modern_slavery. A number of our of policies that set the standards and a range of policies, due diligence and businesses have also produced create mechanisms to respect human remedy processes. independent statements in accordance rights – this includes our Supplier with the UK Modern Slavery Act In every market we always seek to Code of Conduct, Whistleblowing and links to these can be found at give our consumers the best possible Policy and business-specific human www.abf.co.uk/responsibility tasting food products. We are also rights policies (e.g. AB Agri). mindful that individual choice can We provide opportunities that promote • Due diligence: Twinings has sought become bewildering and higher rates human rights and dignity every day to understand the actual and potential of obesity in some of our key markets through the employment we create, human rights risks throughout the point towards a need for governments, both directly and indirectly in our global value chain and our Sugar businesses consumers and business to act together supply chains, and through the positive conducted due diligence to to help promote healthy diets and contribution our products make to understand the different risks across lifestyles. We are doing this through people’s lives. As a group we work their various operations. health education, improved product to respect human rights of all the labelling and reformulation. people with whom we interact. • Remedy: Over the last few years, Whether they are direct employees, Primark has been working to review, temporary workers or those in our revise and improve its approach to supply chain, we know we can play remedy and the grievance a role in enhancing their lives. mechanisms it has to offer. In line with the decentralised nature of For further information see pages our company, human rights are primarily 24–28 of our 2019 Responsibility Report managed by individual businesses. This with additional information provided in also enables the most salient rights to the ESG Appendix.

58 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

3,319 audits of supplier factories by Primark in 2018.

Raising awareness and training • AB Agri trained its transport Promoting health and wellness This year, in collaboration with Twinings, managers, commercial teams and As a company that is proud to sell a we developed a new online ethical delivery drivers (who visit more than range of food items and ingredients, training toolkit, the first module a thousand farms across the UK we take seriously our responsibility to of which is designed to raise awareness every year) to recognise the signs of promote healthy diets and lifestyles. of modern slavery. The course seeks modern slavery and forced labour; We do this in three main ways: to educate our people about modern • AB Sugar created a video to raise • Education: We help educate slavery and forced labour, providing awareness of the potential for modern consumers by running campaigns real-life examples and highlighting the slavery in its supply chain and to that provide them with accurate importance of managing known provide staff with advice on how to information about aspects of their business risks. The course also outlines act on concerns, such as contacting diet like fibre and sugar. Two such how those operating in our supply chain independent whistleblowing hotlines. examples are Jordans Dorset can help to keep it free from modern It is currently exploring how the video Ryvita’s programme FibreFit slavery and human trafficking. This can also be shared with its suppliers. (see 2019 Responsibility Report page course was made available to all our 31) and AB Sugar’s Making Sense of businesses and, in the six months since Priority commodities Sugar campaign (see 2019 it was launched, has been completed by Our businesses purchase a significant Responsibility Report page 29). more than 700 employees. variety of different commodities to make the food and clothing items we • Product labelling: Our businesses Where risks of modern slavery are high, sell. Our businesses have identified a provide clear product labelling and in we ask our suppliers to conduct their range of priority commodities among many cases this includes the addition own Modern Slavery training. For them that they will focus on sourcing of enhanced nutritional information. instance, some of the agencies that responsibly. One example is the Tip Top brand that provide us with temporary labour have features clear front-of-pack nutritional conducted training internally at For example, Primark has identified information aligned with a national our request. cotton as a focus commodity. Primark’s public health campaign in Australia Sustainable Cotton Programme In addition to this centralised training, called ‘A Grain of Truth’ (see 2019 provides growers in India, Pakistan a number of our businesses have Responsibility Report page 29). and China with training in sustainable created tailored training to raise farming methods, helping them to • Reformulation: As a business awareness. For instance: increase productivity and improve operating in a range of food and • Westmill provided Modern Slavery their livelihoods; see page 26 of the ingredient sectors, we have an training to 91% of those employees responsibility report for further opportunity to reformulate both whose role involves recruitment or information. finished products and ingredients. procurement; Allied Bakeries is a business offering reformulated products with greater fibre content and more vitamins and minerals (see 2019 Responsibility Report page 30). Ohly, an ingredients business, has developed baker’s yeast that enables bakeries to achieve a great tasting product with lower salt (see 2019 Responsibility Report page 30).

Annual Report and Accounts 2019 Associated British Foods plc 59 Responsibility | Environment

RESPECTING THE ENVIRONMENT

At a group and business level, we remain committed to seeking sustainable solutions to environmental challenges.

We are focused on building resource We use the Task Force on Climate- We also report our emissions classified efficiencies into all our operations. related Financial Disclosure’s (TCFD) as ‘out of scope’, which are CO2 We strive to use raw materials and recommendations to inform our emissions resulting from the use of ingredients efficiently and responsibly, approach on climate action and related renewable fuels. As these are create less waste and recycle more of disclosures. This year, we conducted considered to be net zero or carbon the waste we do generate. our first high-level climate risk neutral, they are reported separately. assessment considering the impact of Acting on climate change Reducing our energy use 2°C global warming on our businesses Increasingly unpredictable and severe As energy generation is our primary in the short to medium term. weather events are already affecting source of GHG emissions, all our food security, consumption habits and We publish more detail on our businesses are working hard to improve the availability of natural resources. climate-related governance and risk energy efficiency on a continuous basis, management through CDP’s report as well as via investment projects. Our ambition to reduce our overall at www.cdp.net and on pages 62 In addition, the price volatility of the environmental footprint therefore to 66 of this report. energy we purchase means that includes business-led commitments rigorous energy management is a key to reduce GHG emissions, recognising Our total emissions (scopes 1, 2 and 3) operational focus. the Paris Climate Agreement which have decreased again this year. For aims to limit global temperature rises 2019, we report a 4% decrease In 2019, our total energy use was to no more than 2 degrees Celsius compared with last year to 4.75 million 23,565 GWh ∆, a 2% increase on 2018. by the end of the century. Working tonnes CO2e ∆. Our sugar businesses consumed 82% collaboratively with partners, we want of the group’s total, or 19,238 GWh. our operations and supply chain to withstand the challenges of the changing climate while taking advantage of new opportunities including product innovation and increased efficiencies. Our greenhouse gas emissions Our businesses have a role to play in the transition to a low carbon economy 2019 emissions ∆ 2018 emissions by increasing the efficiency of our (000 tCO2e) (000 tCO2e) buildings, operations, logistics and Scope 1 – combustion of fuel and operation agricultural activities, by using of facilities 3,087 3,159 renewable energy where feasible and Scope 1 – generation and use of by investing in new technologies. renewables 75 69 Our energy-intensive businesses, and Scope 1 Total 3,162 3,228 those reliant on secure crop supplies, Scope 2 – emissions from purchased have initiatives to manage their impacts electricity, heat or steam (location method) 831 925 and adapt to changes and have thus Scope 3 – indirect emissions from use of set goals to reduce their emissions. third-party transport 753 813 For example: Total emissions • AB Sugar has made an industry- (Scopes 1, 2 & 3) 4,746 4,966 leading commitment to reduce its Out of scope emissions 3,962 3,711 end-to-end supply chain CO2 footprint by 30% by 2030; 252 tonnes per 266 tonnes per • Illovo Sugar is committed to reducing Emission intensity (Scope 1 and 2) £1m of revenue £1m of revenue GHG emissions by 10.7% by 2020, compared with 2010; and We report our GHG inventory using the GHG Protocol Corporate Accounting and Reporting Standard Revised edition as our framework for calculations and disclosure. We use carbon conversion factors published by the • AB Agri has an aspiration to reduce Department for Business, Energy and Industrial Strategy (BEIS) in August 2019, other internationally recognised sources and bespoke factors based on laboratory calculations at selected locations. This includes all activities its operational energy footprint by where we have operational control. Scope 2 location-based emissions have been calculated in accordance with 20% between 2014 and 2024. the GHG Protocol Scope 2 Guidance on procured renewable energy. For 2018 and 2019, scope 3 emissions are our third-party transport emissions only. See our ESG Appendix for more detail.

60 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Business initiatives Scope 1, 2 and 3 GHG emissions (000 tonnes CO e) AB Sugar Illovo Sugar AB Agri 2

2019 ∆ 4,746 30% 10.7% 20% 4,966 reduction reduction reduction 5,057 in CO2 footprint in GHG emissions in energy footprint 5,258 by 2030 by 2020 by 2024 5,629

In 2019, we exported 971 GWh of Packaging and plastics energy, which is an 18% increase Packaging is essential for containing Energy consumption (GWh) and compared with last year. Some of our and protecting our products during proportion from renewable sources sites generate energy on-site and transit and on the shelf, and we remain when this is surplus to their needs, they committed to initiatives that improve 2019 ∆ 23,600 52% export it to the national grid or other recyclability and recycling rates, reduce 23,200 organisations. volume and weight and avoid waste. In 23,300 2019, Associated British Foods used We also continuously explore how we 22,800 258,800 tonnes ∆ of packaging. This can better use renewable energy. Of 25,000 1% increase compared with last year the total energy we used this year, 52% was largely due to an increase in or 12,211 GWh ∆, came from renewable production at specific sites. sources. This equates to a 6% increase Water abstracted (million m3) in the amount of renewable energy Opportunities to use innovative, generated and used on site compared bio-based materials are limited, not 2019 ∆ 880 with last year. Most of this energy least due to the strict regulations 837 (92%) came from bagasse – the residual governing the materials that can be fibre left after sugar is extracted from used in contact with food, but we 811 sugar cane – from our operations in continue to explore potential new 800 southern Africa. We also use on-site packaging solutions. We believe that 925 anaerobic digesters (AD) to generate all stakeholders need to work together biogas from our own waste streams, to create the recycling infrastructure such as British Sugar’s AD plant in needed for a truly circular economy for Waste disposed (000 tonnes) Suffolk and AB Agri’s facility in plastics and welcome initiatives which and proportion recycled Yorkshire. This year biogas accounted encourage this development. for 2% of the total renewable fuels used Our UK Grocery businesses signed the 2019 ∆ 632 80% on site. UK Plastics Pact in 2018, through which 770 Water management they have committed to ensure 100% 1,000 Our businesses invest in initiatives of their plastic packaging is reusable, 1,000 to reduce water abstraction per recyclable or compostable and averages tonne of product and increase their 30% recycled content by 2025. 862 ability to reuse water for cleaning or cooling equipment or for irrigation Environmental compliance before returning it to the environment. This year we received 14 environmental uantity of packaging used By reusing water, we reduce the fines ∆ with a cost of £118,000 ∆ which (000 tonnes) amount which is abstracted in the first fell within the reporting year. These were largely due to the treatment of place. In 2019, we abstracted 880 2019 ∆ 259 3 waste water, management of on-site million m ∆ of water which is a 5% 256 waste, gas emissions and odour control. increase compared with last year. Of the 243 total water abstracted, 19% was reused The sites have addressed the issues 248 within our operations before finally and liaised with the local authorities and returning it to the watercourse. regulators to ensure standards are met. 238 Managing waste We look for positive ways to use the waste we create, through reuse and recycling or by creating by-products such as energy, soil or animal feed. This year we generated 631,800 tonnes ∆ which is an 18% decrease compared with last year. Of the total generated, 80% was recycled, recovered or had a beneficial use.

Annual Report and Accounts 2019 Associated British Foods plc 61 Principal risks and uncertainties

EFFECTIVE RISK MANAGEMENT

Our approach to risk management The group’s Director of Financial Control effectiveness of the group’s risk The delivery of our strategic objectives receives the risk assessments on an management processes and internal and the sustainable growth (or long- annual basis and, with the Group controls in accordance with the UK term shareholder value) of our business, Finance Director, reviews and Corporate Governance Code. Our is dependent on effective risk challenges them with the divisional approach to risk management and management. We regularly face chief executives, on an individual basis. systems of internal control is in line with business uncertainties and it is through These discussions are wide ranging and the recommendations in the Financial a structured approach to risk management consider operational, environmental and Reporting Council’s (FRC) revised that we are able to mitigate and manage other external risks. These risks and guidance ‘Risk management, internal these risks and embrace opportunities their impact on business performance control and related financial and when they arise. The diversified nature are reported during the year and are business reporting’ (the Risk Guidance). of our operations, geographical reach, considered as part of the monthly The board is satisfied that internal assets and currencies are important management review process. controls were properly reviewed and factors in mitigating the risk of a material key risks are being appropriately Group functional heads including Legal, threat to the group’s sustainable growth identified and managed. Treasury, Tax, IT, Pensions, HR, and long-term shareholder value. Procurement and Insurance also provide Brexit However, as with any business, risks input to this process, sharing with the Following the referendum decision in and uncertainties are inherent in our Director of Financial Control their view of 2016, the group established an EU Exit business activities. These risks may key risks and what activities are in place or Steering Committee which consists of have a financial, operational or planned to mitigate them. A combination a small dedicated team which worked reputational impact. of these perspectives with the business with all the businesses to assess the The board is accountable for effective risk assessments creates a consolidated risks and opportunities arising from the risk management, for agreeing the view of the group’s risk profile. A UK’s decision to leave the EU. The principal risks facing the group and summary of these risk assessments group’s business model, under which ensuring they are successfully managed. is then shared and discussed with the Primark operates largely discrete supply The board undertakes an annual Group Finance Director and Chief chains for its stores in each of the UK, assessment of the principal risks, Executive at least annually. US and EU27 and food production is, including those that would threaten the wherever possible, aligned with the The Director of Financial Control business model, future performance, end market, means that the group holds meetings with each of the solvency or liquidity. The board also undertakes relatively little cross-border non-executive directors seeking their monitors the group’s exposure to risks trading between the UK and the rest of feedback on the reviews performed and as part of the performance reviews the EU. We therefore quickly came to discussing the key risks and mitigating conducted at each board meeting. the conclusion that the overall impact of activities. Once all non-executive Financial risks are specifically reviewed Brexit on the group was relatively minor. directors have been consulted, a board by the Audit committee. report is prepared summarising the full We recognise that the current political Each year, the Audit committee on process and providing an assessment situation makes the final outcome of the behalf of the board reviews the of the status of risk management across negotiations between the UK and the effectiveness of the group’s approach the group. The key risks, mitigating EU uncertain. While we would prefer to risk management including the controls and relevant policies are a negotiated exit, we are prepared for internal control procedures and summarised and the board confirms the any of the potential outcomes. resources devoted to them. group’s principal risks. These are the In particular, over the last year the group risks which could prevent Associated Our decentralised business model and the individual businesses have British Foods from delivering its empowers the management of our taken reasonable steps to mitigate strategic objectives. This report also businesses to identify, evaluate and where possible the impacts of leaving details when formal updates relating manage the risks they face, on a timely the EU without a transitional agreement. to the key risks will be provided to the basis, to ensure compliance with The key risks identified, and the actions board throughout the year. relevant legislation, our business taken are as follows: principles and group policies. Key areas of focus this year • Imports to the UK. The UK Effective risk management processes Our businesses perform risk assessments government has indicated the tariffs and internal controls which consider materiality, risk controls that will be applied to imports in the We continued to seek improvements in and specific local risks relevant to the absence of a transitional agreement our risk management processes to markets in which they operate. The and we expect these to have a net ensure the quality and integrity of collated risks from each business are positive impact on the group. All information and the ability to respond shared with the respective divisional chief necessary registrations have been swiftly to direct risks. During the year, executives who present their divisional completed. Where goods are the Audit committee on behalf of the risks to the group executive. imported into the UK by third parties board conducted reviews on the

62 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

on behalf of the businesses, • People. The businesses have relations, the regulatory environment assurances have been sought that publicised the UK government’s and competition. These are managed these will be available when required. Settled Status Scheme and where as part of the risk process and a number appropriate have assisted employees of these are referred to in our 2019 • Disruption to EU-UK logistics. with the application process. Responsibility Report. Here, we report In the absence of a withdrawal the principal risks which we believe are agreement, there is a risk of delays Our principal risks and uncertainties likely to have the greatest current or and disruption to the flow of goods The directors have carried out an near-term impact on our strategic and between the UK and the EU in both assessment of the principal risks facing operational plans and reputation. directions. The businesses that could Associated British Foods, including They are grouped into external risks, potentially be impacted by this have those that would threaten its business which may occur in the markets or reviewed their exposure and where model, future performance, solvency or environment in which we operate, and appropriate have increased inventory liquidity. Outlined below are the group’s operational risks, which are related to levels to partially mitigate the risk. principal risks and uncertainties and the internal activity linked to our own The ability to do this is constrained by key mitigating activities in place to operations and internal controls. warehouse availability and the shelf address them. These are the principal life of the goods. risks of the group as a whole and are The ‘Changes since 2018’ describe not in any order of priority. our experience and activity over the • Data. Where necessary, the last year. businesses have agreed Standard Associated British Foods is exposed Contractual Terms to enable certain to a variety of other risks related to personal data to be transferred from a range of issues such as human the EU to the UK. resources and talent, community External risks

Risk trend Mitigation Changes since 2018

Our businesses which are impacted by Sterling weakened against some of our Increased exchange rate volatility and currency major trading currencies this year, Movement in depreciation constantly review their resulting in a gain on translation this year currency-related exposures. of £9m. exchange rates Board-approved policies require Primark covers its currency exposure on Context and potential impact businesses to hedge all transactional purchases of merchandise denominated Associated British Foods is a multinational currency exposures and long-term supply in foreign currencies at the time of group with operations and transactions in or purchase contracts which give rise to placing orders, with an average tenor of many currencies. currency exposures, using foreign Primark’s hedging activity of between exchange forward contracts. 3 and 4 months. There was a minimal Changes in exchange rates give rise to transactional effect from changes in the transactional exposures within the Cash balances and borrowings are largely US dollar exchange rate on Primark’s businesses and to translation exposures maintained in the functional currency of largely dollar denominated purchases for when the assets, liabilities and results of the local operations. the year in aggregate. overseas entities are translated into sterling Cross-currency swaps are used to align upon consolidation. borrowings with the underlying currencies In the last quarter of the financial year of the group’s net assets (refer to note 25 there has been a greater level of volatility to the financial statements for more in sterling exchange rates against our information). major trading currencies.

The group purchases a wide range Lower sugar prices had another Unchanged of commodities in the ordinary course negative impact on the profitability of our Fluctuations in of business. businesses in the UK, Spain and China this year. However, spot EU prices increased commodity and We constantly monitor the markets in which we operate and manage certain of during the second half and should have a energy prices these exposures with exchange traded positive impact on profitability next year. contracts and hedging instruments. The price of UK wheat, a key commodity Context and potential impact for our UK bakery business, returned to Changes in commodity and energy The commercial implications of more normal levels following a significant prices can have a material impact on the commodity price movements are increase in 2018. group’s operating results, asset values continuously assessed and, where and cash flows. appropriate, are reflected in the pricing of our products.

Annual Report and Accounts 2019 Associated British Foods plc 63 Principal risks and uncertainties

External risks continued

Risk trend Mitigation Changes since 2018

Our approach to risk management In June 2019, Primark opened its first Increased incorporates potential short-term market store in Slovenia. Operating in global volatility and evaluates longer-term High inflation in Argentina adversely socio-economic and political scenarios. markets affected our yeast and bakery ingredients The group’s financial control framework business based there. Context and potential impact and board-adopted tax and treasury Associated British Foods operates in 52 policies require all businesses to comply countries with sales and supply chains in fully with relevant local laws. many more, so we are exposed to global Provision is made for known issues based market forces; fluctuations in national on management’s interpretation of economies; societal unrest and geopolitical country-specific tax law, EU cases and uncertainty; a range of consumer trends; investigations on tax rulings and their evolving legislation and changes made by likely outcomes. our competitors. By their nature socio-political events are Failure to recognise and respond to any largely unpredictable. Nonetheless our of these factors could directly impact the businesses have detailed contingency profitability of our operations. plans which include site-level emergency Entering new markets is a risk to responses and improved security any business. for employees. We engage with governments, local regulators and community organisations to contribute to, and anticipate, important changes in public policy. Following declines in the world and EU sugar prices in 2018, AB Sugar continues to reduce its cost base through its performance improvement programme. We conduct rigorous due diligence when entering, or commencing business activities in, new markets.

Consumer preferences and market trends Our businesses continue to review their Unchanged are monitored continually. products and to partner with others to Health and nutrition Recipes are regularly reviewed and enable a swift and innovative response reformulated to improve the nutritional to changing consumer needs. Context and potential impact value of our products. Our Sugar and Grocery businesses have Failure to adapt to changing consumer supported healthy eating campaigns again health choices or to address nutrition All of our grocery products are labelled with nutritional information. this year to help consumers make concerns in the formulation of our products informed choices about their food. could result in a loss of consumer base We develop partnerships with other and impact business performance. organisations to promote healthy options. We continue to invest in new product design.

64 Associated British Foods plc Annual Report and Accounts 2019 Strategic report

Operational risks

Risk trend Mitigation Changes since 2018

Safety continues to be the number one During the year there has been a 19% Unchanged priority for our businesses. The chief reduction in our employee Lost Time Workplace health executives of each business, who lead by Injury rate to 0.65%. Our businesses example, are accountable for the safety conduct thorough root cause analyses and safety performance of their business. to learn from accidents and implement safety changes. Context and potential impact Our Health and Safety Policy and Many of our operations, by their nature, Practices are firmly embedded in each The safety performance of the group is have the potential for loss of life or business, supporting a strong ethos of reported in the 2019 Responsibility Report workplace injuries to employees, workplace safety. at www.abf.co.uk/responsibility. contractors and visitors. We have a continuous safety audit programme to verify implementation of safety management and support a culture of continuous improvement. Best practice safety and occupational health guidance is shared across the businesses, co-ordinated from the corporate centre, to supplement the delivery of their own programmes. Unchanged Product safety is put before economic We did not have any major product recalls. considerations. Businesses have continued to define and Product safety and We operate strict food safety and refine KPIs in this area. quality traceability policies within an organisational culture of hygiene and Context and potential impact product safety to ensure consistently high As a leading food manufacturer and retailer, standards in our operations and in the it is vital that we manage the safety and sourcing and handling of raw materials quality of our products throughout the and garments. supply chain. Food quality and safety audits are conducted across all our manufacturing sites, by independent third parties and customers, and a due diligence programme is in place to ensure the safety of our retail products. Our sites comply with international food safety and quality management standards and our businesses conduct regular mock product incident exercises.

In parallel to developing our technology There is an ongoing programme of Unchanged systems, we invest in developing the investment in both technology and people Breaches of IT and IT capabilities of our people across to enhance our cyber-security capabilities. our businesses. information security During the year we have reviewed IT We monitor and address any cyber-threats disaster recovery plans across the Context and potential impact and suspicious IT activity. businesses. To meet customer, consumer and supplier We have established processes, group IT We are refreshing IT Security policies needs, our IT infrastructure needs to be security policies and technologies, all of and we have made further investment flexible, reliable and secure to allow us to which are subject to regular internal audit. in people, processes and technology interact through technology. Access to sensitive data is restricted and to detect, respond and recover from Our delivery of efficient and effective closely monitored. disruptive cyber-threats. operations is enhanced by the use of relevant technologies and the sharing of Robust disaster recovery plans are in place information. We are therefore subject to for business-critical applications. potential cyber-threats such as computer Technical security controls are in place viruses and the loss or theft of data. over key IT platforms with the Chief There is the potential for disruption to Information Security Officer (CISO) tasked operations from data centre failures, IT with identifying and responding to malfunctions or external cyber-attacks. potential security risks.

Annual Report and Accounts 2019 Associated British Foods plc 65 Principal risks and uncertainties

Operational risks continued

Risk trend Mitigation Changes since 2018

We continuously seek ways to improve The environmental performance of the Unchanged the efficiency of our operations, use group is reported in the 2019 Responsibility Our use of natural technologies and techniques to reduce Report at www.abf.co.uk/responsibility. our use of natural resources and adapt resources and managing We annually report our approach to operations to climate change in order to climate change, water and deforestation our environmental contribute positively to local environments risk via CDP at www.cdp.net. and minimise impact. impact Our businesses are continuously seeking Our businesses aim to be a good ways to reduce their impact on the Context and potential impact neighbour within their local communities. environment. Our businesses rely on a secure supply One aspect of this is the monitoring and of natural resources, some of which are management of noise, particle and We look for ways to progressively reduce vulnerable to external factors such as odour pollution. our greenhouse gas (GHG) emissions and natural disasters and climate change. reduce our contribution to climate change. Our material environmental impacts are AB Sugar, Primark and AB Agri businesses energy use and resultant greenhouse gas have each set commitments for their own emissions, water use, waste generation operations and supply chain to improve and packaging. sustainability performance. In our assessment of climate-related business risks, we recognise that the cumulative impacts of changes in weather and water availability could affect operations at a group level. The diversified nature of Associated British Foods means that mitigation or adaptation strategies are considered and implemented by individual businesses and divisions. Our operations generate a range of emissions such as dust, waste water and waste which, if not controlled, could pose a risk to the environment and local communities.

Our Supplier Code of Conduct is designed We have developed a company-wide Unchanged to ensure suppliers, representatives and all online training module about modern Our supply chain with whom we deal, adhere to our values slavery to help accelerate awareness- and standards. raising and give businesses the tools and ethical business The full Code is available at www.abf. to train people. practices co.uk/supplier_code_of_conduct In addition to Primark and Twinings, AB Sugar has produced an interactive Context and potential impact Suppliers are expected to sign and abide sourcing map that outlines where As an international business with suppliers by this Code. AB Sugar grows, sources and exports and representatives the world over, people Adherence to the Code is verified sugar: www.absugar.com/sourcing-map with whom we deal and in particular our through our supplier audit system with suppliers and our representatives must live our procurement and operational teams Primark has been working to strengthen up to our values and standards and share establishing strong working relationships its policies relating to human rights and that responsibility. with suppliers to help them meet modern slavery and has published a revised supplier code of conduct and We therefore work with them to ensure our standards. made public its human rights policy. reliability and to help them meet our All businesses are required to comply with standards of product quality and safety, the group’s Business Principles including Our Modern Slavery and Human acceptable working conditions, financial its Anti-Bribery and Corruption Policy. Trafficking Statement 2019 and the steps stability, ethics and technical competence. we take to try to ensure that any forms of modern slavery are not present within Potential supply chain and ethical business our own operations or supply chain practice risks include: are reported in detail in the 2019 • supply chain weaknesses such as poor Responsibility Report at www.abf.co.uk/ conditions for the workforce; responsibility. • unacceptable and unethical behaviour including bribery, corruption and slavery risk; • impact on reliability of supply and business continuity due to unforeseen incidents e.g. natural disasters; and • long-term sustainability of key suppliers.

66 Associated British Foods plc Annual Report and Accounts 2019 Strategic report Viability statement

The directors have determined that Such is the diversity of the group, Even in a worst-case scenario, the most appropriate period over which with operations across 52 countries with risks modelled to materialise to assess the Company’s viability, in and sales in more than 100, that none simultaneously and for a sustained accordance with the UK Corporate of the principal risks or uncertainties period, the likelihood of the group Governance Code, is three years. This individually is considered likely to have having insufficient resources to meet is consistent with the group’s business a material impact on the group’s its financial obligations is remote. model which devolves operational profitability or extensive cash resources. Based on this assessment, the decision making to the businesses, Furthermore, the group’s business directors confirm that they have each of which sets a strategic planning model means that no significant reliance a reasonable expectation that the time horizon appropriate to its activities is placed on any one group of customers Company will be able to continue which are typically of three years or suppliers and its diversity reduces in operation and meet its liabilities duration. The directors also considered the risk that issues affecting a particular as they fall due over the three-year the diverse nature of the group’s sector will have a material impact on period to 17 September 2022. activities and the degree to which the group as a whole. On behalf of the board. the businesses change and evolve At 14 September 2019, £1.2bn of in the relatively short term. Michael McLintock committed borrowing facilities available Chairman The directors considered the group’s to the group were undrawn and the profitability, cash flows and key financial directors are of the opinion that George Weston ratios over this period and the potential substantial further funding could be Chief Executive impact that the Principal Risks and secured, at relatively short notice, Uncertainties set out on pages 62 to 66 should the need arise. The revolving John Bason could have on the solvency or liquidity credit facility is not due for renewal Finance Director of the group. Sensitivity analysis was until July 2021 and £80m of the private applied to these metrics and the placement funding matures beyond projected cash flows were stress the period under consideration. tested against a range of scenarios. The group has a sound track record of The directors considered the level delivering strong cash flows, with well of performance that would cause the in excess of £1bn of operating cash group to breach its debt covenants, being generated in each of the last the financial implications of making eight years. This has been more than any strategic acquisitions and a variety sufficient to fund expansionary capital of factors that have the potential to investment and, specifically, has reduce profit substantially. These enabled the development of Primark included the rate and success of in continental Europe and the US. Primark’s expansion; actions which The group’s cash flows have supported could damage the group’s reputation 8% compound annual growth in the for the long term; and macro-economic dividend over the last ten years. influences such as fluctuations in commodity markets and the possible implications of a no-deal Brexit.

Annual Report and Accounts 2019 Associated British Foods plc 67 Board of Directors

1 2 3

4 1. Michael McLintock N R 2. George Weston Chairman Chief Executive Michael was appointed a director in George was appointed to the board November 2017 and Chairman in April in 1999 and took up his current 2018. He was formerly chief executive appointment as Chief Executive in April of M&G, retiring in 2016, having 2005. In his former roles at Associated joined the company in 1992 and been British Foods, he was Managing appointed chief executive in 1997. In Director of Westmill Foods, Allied 1999 he oversaw the sale of M&G to Bakeries and George Weston Foods Prudential plc where he served as an Limited (Australia). executive director from 2000 until 2016. Other appointments: Previously he held roles in investment Non-executive director of Wittington management at Morgan Grenfell and in Investments Limited corporate finance at Morgan Grenfell Trustee of the Garfield Weston and Barings. Foundation 4. Wolfhart Hauser N A R Other appointments: Trustee of the British Museum Independent non-executive Trustee of the Grosvenor Estate director Non-executive Chairman of Grosvenor 3. John Bason Wolfhart was appointed a director in Group Limited Finance Director January 2015. Starting his career with Member of the advisory board of John was appointed as Finance various research activities, he went Bestport Private Equity Limited Director in May 1999. He has extensive on to establish and lead a broad range Member of the advisory board international business experience and of successful international service of Spencer Stuart an in-depth knowledge of the industry. industry businesses. He was Chief Member of the Takeover Appeal Board He was previously the finance director Executive of Intertek Group plc for of Bunzl plc and is a member of the ten years until he retired from that Institute of Chartered Accountants in role and the board in May 2015. He was England and Wales. previously Chief Executive Officer and Other appointments: President of TÜV Süddeutschland AG Senior Independent Director of for four years and Chief Executive Compass Group PLC Officer of TÜV Product Services for Chairman of the charity FareShare ten years. He has also held other directorship roles, including as a non-executive director of Logica plc from 2007 to 2012 and Chair of FirstGroup plc for four years from 2015 to July 2019. Other appointments: Senior Independent Director of RELX PLC

Board committees key N Nomination committee A Audit committee R Remuneration committee Committee Chair

68 Associated British Foods plc Annual Report and Accounts 2019 StrategicGovernance report

6 7 8

5 N A R 6. Emma Adamo R 8. Ruth Cairnie Non-executive director Independent non-executive Emma was appointed a director in director December 2011. She was educated Ruth was appointed a director in May at Stanford University and has an MBA 2014 and has been Senior Independent from INSEAD in France. Director since 7 December 2018. Ruth was formerly Executive Vice President Other appointments: Strategy & Planning at Royal Dutch Shell Director of Wittington plc. This role followed a number of Investments Limited senior international roles within Shell, Deputy Chair of the W. Garfield including Vice President of its Global Weston Foundation in Canada Commercial Fuels business. Ruth has also held a number of non-executive 7. Graham Allan A R directorships including on the boards of Independent non-executive Keller Group plc and ContourGlobal plc. director 5. Richard Reid N A R Graham was appointed a director in Other appointments Independent non-executive September 2018. Graham was formerly Director and Chair of Babcock director the Group Chief Executive of Dairy International Group PLC Richard was appointed a director in Farm International Holdings Limited, Non-executive director of Rolls-Royce April 2016. He was formerly a partner a pan-Asian retailer and a subsidiary of Holdings plc (until 31 December 2019) at KPMG LLP (‘KPMG’), having joined Jardine Matheson, until August 2017 Industry chair of POWERful Women the firm in 1980. From 2008, Richard after serving five years with the group. served as London Chairman at KPMG Prior to joining Dairy Farm, he was until he retired from that role and KPMG President and Chief Executive Officer at in September 2015. Previously, Richard Yum! Restaurants International and was was KPMG’s UK Chairman of the High responsible for global brands KFC, Pizza Growth Markets group and Chairman Hut and Taco Bell in all markets except of the firm’s Consumer and Industrial the US and China. Since 1989, Graham Markets group. has held various senior positions in Other appointments: multinational food and beverage Chairman of National Heart and Lung companies with operations across the Institute Foundation globe and has lived and worked in Deputy Chairman of Berry Bros & Rudd Australia, Asia, the US and Europe. Senior Advisor to Bank of China UK Other appointments: Senior Independent Director of Intertek Group plc Chairman of Bata International, a privately owned wholesaler and retailer Member, Business Council of IKANO Pte Ltd Board member of Kuwait Food Company Americana KSCC

Annual Report and Accounts 2019 Associated British Foods plc 69 Corporate governance

In this section Corporate governance Directors’ report Independent pages 70–82 pages 107–109 auditor’s report pages 111–118 Remuneration report Statement of directors’ pages 83–106 responsibilities page 110

Dear fellow shareholders You will note that, at this year’s Compliance with the UK I am pleased to present the Associated annual general meeting (‘AGM’), we Corporate Governance Code British Foods plc corporate governance will be seeking approval for proposed As a premium listed company on the report for the year ended 14 September changes to our remuneration policy. London Stock Exchange, the Company 2019. In my first report last year, I looked Further details on this can be found on is reporting in accordance with forward to continuing along the path pages 91 to 96 of this annual report. the UK Corporate Governance Code of strong governance with a focus on published in April 2016 (the ‘2016 Code’) As I have mentioned before, Associated ethics, whilst encouraging management which sets out standards of good British Foods is an organisation built to take a long-term view and to invest practice in relation to board leadership upon sound ethical foundations with in the future as our businesses grew. and effectiveness, remuneration, a strong culture. This is embodied in I believe that we have made and accountability and relations with the values we seek to live by, namely: continue to make good progress shareholders. The Code is published respecting everyone’s dignity; acting along that path. by the UK Financial Reporting Council with integrity; progressing through (‘FRC’) and a copy of the Code is As Chairman, my role is to get the collaboration; and pursuing with rigour. available from the FRC website: best out of the board. This involves We discuss these in further detail in www.frc.org.uk. ensuring that, whilst the businesses the Responsibility section of this annual are run through an appropriate and report at pages 53 to 61 and also in The board has received regular sound executive team, issues are more detail in our 2019 Responsibility updates on the 2018 UK Corporate raised and properly discussed around Report which highlights the way each Governance Code (the ‘2018 Code’) the board table. of our businesses work bearing these and the changes which this introduces. values in mind. This new report is The 2018 Code applies to companies This has been a year of consolidating available on the Company’s website with financial years beginning on or after on the existing board and building on at www.abf.co.uk/responsibility. 1 January 2019. We will therefore report the changes that were made last year. in accordance with the 2018 Code Ruth Cairnie was appointed to the role Last year I mentioned that management in our annual report for the year ending of Senior Independent Director in late at a group level are continually looking 12 September 2020. 2018. During the course of the year, to find ways to improve communication with the assistance of the Head links with the businesses. With this The board has already started a of Secretariat, we undertook an in mind, and also taking into account programme to implement the changes internal evaluation of the board and its impending changes to corporate suggested in the 2018 Code. For committees. As has been our custom, governance, I’m pleased to report example, the board has recently this was led by the most recently that Richard Reid was appointed as appointed Richard Reid as designated appointed independent non-executive designated non-executive director non-executive director for engagement director, in this case Graham Allan, for engagement with the workforce. with the workforce. who joined us in September 2018. Richard has already made good progress The board considers that the Overall, the results concluded that our ascertaining the level of engagement Company has, throughout the year board and committees are regarded as already in place, as well as reinforcing ended 14 September 2019, applied highly effective in providing oversight the employee engagement processes the main principles and complied in of the Company and its governance, both with the heads of each division full with the provisions set out in the as well as supporting appropriate when joining me at the CEO conference 2016 Code. growth plans. Further information in April 2019 as well as with the HR on this is provided on page 74. directors of the businesses at their conference over the summer. I look forward to reporting further progress on this in my corporate governance statement next year. Michael McLintock Chairman

70 Associated British Foods plc Annual Report and Accounts 2019

Governance Corporate governance

Leadership of the group. The chief executive of each together, cover a broad range of The board business within the group has authority jurisdictions, bringing valuable external In this section The board of directors is collectively for that business and reports directly perspective to the board’s deliberations Corporate governance Directors’ report Independent responsible to the Company’s to the Chief Executive. through their experience and insight pages 70–82 pages 107–109 auditor’s report shareholders for the direction and from different sectors and geographies. Chairman and Chief Executive pages 111–118 oversight of the Company to ensure This enables them to contribute The roles of the Chairman and the Chief Remuneration report Statement of directors’ its long-term success. The board met significantly to board decision-making, Executive are separately held and the pages 83–106 responsibilities regularly throughout the year to approve whilst the small size of the board division of their responsibilities is clearly page 110 the group’s strategic objectives, to is conducive to open and candid established, set out in writing, and lead the group within a framework discussions. The formal letters of agreed by the board to ensure that no of effective controls which enable risk appointment of non-executive directors one has unfettered powers of decision. to be assessed and managed, and to are available for inspection at the The Chairman is responsible for the ensure that sufficient resources are Company’s registered office. operation and leadership of the board, available to meet the objectives set. ensuring its effectiveness and setting Re-election of directors Dear fellow shareholders You will note that, at this year’s Compliance with the UK There are a number of matters which its agenda. The Chief Executive is In accordance with the Code’s I am pleased to present the Associated annual general meeting (‘AGM’), we Corporate Governance Code are specifically reserved for the board’s responsible for leading and managing recommendations, all directors British Foods plc corporate governance will be seeking approval for proposed As a premium listed company on the approval. These are set out in a clearly the group’s business within a set of currently in office will be proposed report for the year ended 14 September changes to our remuneration policy. London Stock Exchange, the Company defined schedule and include: matters authorities delegated by the board and for re-election at the 2019 AGM 2019. In my first report last year, I looked Further details on this can be found on is reporting in accordance with relating to the group’s strategic plan; for the implementation of board strategy to be held in December. approving the annual business strategy and policy. forward to continuing along the path pages 91 to 96 of this annual report. the UK Corporate Governance Code Board meetings and objectives; the nature and extent of strong governance with a focus on published in April 2016 (the ‘2016 Code’) Senior Independent Director The board held eight meetings during As I have mentioned before, Associated of principal risks to be taken to achieve ethics, whilst encouraging management which sets out standards of good The purpose of this role is to act as a the financial year. Periodically, board British Foods is an organisation built the strategic objectives; changes relating to take a long-term view and to invest practice in relation to board leadership sounding board for the Chairman and meetings are held away from the upon sound ethical foundations with to structure and capital; approval of in the future as our businesses grew. and effectiveness, remuneration, to serve as an intermediary for other corporate centre in London. As part a strong culture. This is embodied in trading statements, interim results, I believe that we have made and accountability and relations with directors where necessary. The Senior of the board’s engagement with the values we seek to live by, namely: final results and annual report; declaring continue to make good progress shareholders. The Code is published Independent Director is also available employees, the April meeting was held respecting everyone’s dignity; acting interim dividends and recommending along that path. by the UK Financial Reporting Council to shareholders should a need arise at the Primark Birmingham store, which with integrity; progressing through final dividends; the group’s policies (‘FRC’) and a copy of the Code is to convey concerns to the board included a tour of the store and meeting As Chairman, my role is to get the collaboration; and pursuing with rigour. and systems of internal control and risk available from the FRC website: which they have been unable to with employees. The May meeting best out of the board. This involves We discuss these in further detail in management; approving capital projects, www.frc.org.uk. convey through the Chairman or was held at the Primark office in Dublin. ensuring that, whilst the businesses the Responsibility section of this annual acquisitions and disposals valued at over through the executive directors. are run through an appropriate and report at pages 53 to 61 and also in The board has received regular £30m; provision of adequate succession The attendance of the directors at board sound executive team, issues are more detail in our 2019 Responsibility updates on the 2018 UK Corporate planning; approving major group policies The non-executive directors and committee meetings during the year raised and properly discussed around Report which highlights the way each Governance Code (the ‘2018 Code’) and matters relating to the compliance The non-executive directors, in addition is shown in the table below. If a director the board table. of our businesses work bearing these and the changes which this introduces. with the terms of the Relationship to their responsibilities for strategy is unable to participate in a meeting values in mind. This new report is The 2018 Code applies to companies Agreement between the Company This has been a year of consolidating and business results, play a key role in either in person or remotely, the available on the Company’s website with financial years beginning on or after and its controlling shareholders on the existing board and building on providing a solid foundation for good Chairman will solicit their views on key at www.abf.co.uk/responsibility. 1 January 2019. We will therefore report dated 14 November 2014 (which was the changes that were made last year. corporate governance and ensure that items of business in advance of the in accordance with the 2018 Code amended and restated by agreement Ruth Cairnie was appointed to the role Last year I mentioned that management no individual or group dominates the relevant meeting and share these with in our annual report for the year ending dated 29 March 2019). The schedule of of Senior Independent Director in late at a group level are continually looking board’s decision-making. They each the meeting so that they are able to 12 September 2020. matters reserved is available to view on 2018. During the course of the year, to find ways to improve communication occupy, or have occupied, senior contribute to the debate. the corporate governance section of the with the assistance of the Head links with the businesses. With this The board has already started a positions in industry which, taken Company’s website: www.abf.co.uk. of Secretariat, we undertook an in mind, and also taking into account programme to implement the changes internal evaluation of the board and its impending changes to corporate suggested in the 2018 Code. For Certain specific responsibilities are committees. As has been our custom, governance, I’m pleased to report example, the board has recently delegated to the board committees, Audit Nomination Remuneration this was led by the most recently that Richard Reid was appointed as appointed Richard Reid as designated being the Audit, Remuneration and Board committee committee committee appointed independent non-executive designated non-executive director non-executive director for engagement Nomination committees, which Michael McLintock 8/8 – 1/1 8/8 George Weston 8/8 – – – director, in this case Graham Allan, for engagement with the workforce. with the workforce. operate within clearly defined terms John Bason 8/8 – – – who joined us in September 2018. Richard has already made good progress of reference and report regularly to the The board considers that the Emma Adamo 8/8 – – – Overall, the results concluded that our ascertaining the level of engagement board. For further details, please see the Company has, throughout the year Graham Allan 8/8 4/4 – 8/8 board and committees are regarded as already in place, as well as reinforcing ‘Board committees’ section starting on ended 14 September 2019, applied Ruth Cairnie 8/8 4/4 1/1 8/8 highly effective in providing oversight the employee engagement processes page 77. the main principles and complied in Wolfhart Hauser 8/8 4/4 1/1 8/8 of the Company and its governance, both with the heads of each division full with the provisions set out in the Authority for the operational Richard Reid 8/8 4/4 1/1 8/8 as well as supporting appropriate when joining me at the CEO conference 1 2016 Code. Javier Ferrán 1/1 – – 1/1 growth plans. Further information in April 2019 as well as with the HR management of the group’s business has been delegated to the Chief 1 Javier Ferrán retired from the board on 7 December 2018 on this is provided on page 74. directors of the businesses at their conference over the summer. I look Executive for execution or further All of the above attended those meetings that they were eligible to attend. forward to reporting further progress delegation by him for the effective on this in my corporate governance day-to-day running and management statement next year. Michael McLintock Chairman

70 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 71

Corporate governance

The work of the board during the year Senior executives below board level During the financial year, key activities of the board included: are invited, when appropriate, to attend board meetings and to make Strategy presentations on the results and • conducting regular strategy update sessions in board meetings; strategies of their business units. • holding an annual ‘away-day’ focused on strategy; and Papers for board and committee • receiving a strategy update from the Chief Executive and Director of Business Development. meetings are generally provided to directors a week in advance of Acquisitions/disposals the meetings. • approving the entry into a yeast and bakery ingredients joint venture with Wilmar International in China, subject to regulatory clearances; Board committees • approving the acquisition of Anthony’s Goods; and The board has established three principal • receiving regular updates on proposed acquisitions and disposals. board committees, to which it has Financial and operational performance delegated certain of its responsibilities. These are the Audit, Nomination and • receiving regular reports to the board from the Chief Executive; Remuneration committees. The • receiving, on a rolling basis, senior management presentations from each of the group business areas; membership, responsibilities and activities of these committees are • approving the group budget for the 2019/20 financial year; described later in this Corporate • approving the Company’s full year and interim results; governance report and, in the case recommending the 2018 final dividend and approving the 2019 interim dividend; and • of the Remuneration committee, in • approving banking mandate updates and various other treasury-related matters. the Remuneration report which starts Governance and risk on page 83. Membership of these • annual review of the material financial and non-financial risks facing the group’s committees is reviewed annually. businesses; Minutes of committee meetings are • scenario planning discussion of possible business effects of any political changes made available to all directors on a within the UK; timely basis. • half yearly review of progress in implementing actions arising from the 2018 board evaluation; The Chairs of the Audit, Nomination and Remuneration committees were • participating in the 2019 annual board performance evaluation and considering the report received on the review; present at the 2018 AGM and intend • receiving regular updates on corporate governance and regulatory matters; to be present at this year’s AGM to answer questions on the work of • receiving reports from the board committee chairs; their respective committees. • confirming directors’ independence and conflicts of interest; • reviewing and approving gender pay reporting and Modern Slavery Statement; and The written terms of reference for the • undertaking appropriate preparations for the holding of the annual general meeting Audit, Nomination and Remuneration including considering and approving an ‘outlook’ statement and subsequently, committees are available on the discussing issues arising from the annual general meeting. Company’s website, www.abf.co.uk, Corporate responsibility and hard copies are available on request. • approving the enhanced reporting on responsibility; Effectiveness • receiving regular management reports and an annual presentation on health, safety and Board composition environmental issues; and At the date of this report, the board • receiving updates on Primark ethical sourcing. comprises the following directors: Investor relations and other stakeholder engagement • receiving reports on investor relations activities and regular feedback on directors’ Chairman meetings held with institutional investors; and Michael McLintock • receiving reports from the designated non-executive director for engagement with the Executive directors workforce. George Weston (Chief Executive) People John Bason (Finance Director) • appointment of Ruth Cairnie as Senior Independent Director; Non-executive directors • receiving a presentation on workforce engagement from the Group HR Director; Emma Adamo • appointment of Richard Reid as designated non-executive director for engagement Graham Allan with the workforce; and Ruth Cairnie • reviewing and approving share allocations for senior management and non-executive Wolfhart Hauser director/committee chair fees. Richard Reid

72 Associated British Foods plc Annual Report and Accounts 2019

Governance Corporate governance

The work of the board during the year Senior executives below board level Board independence Board development The Chief Executive encourages other During the financial year, key activities of the board included: are invited, when appropriate, to Emma Adamo is not considered by The Chairman, with the support of the board members to visit operations either attend board meetings and to make the board to be independent in view Company Secretary, is responsible for with him, with other directors or on Strategy presentations on the results and of her relationship with Wittington the induction of new directors and the their own. During the year, Ruth Cairnie • conducting regular strategy update sessions in board meetings; strategies of their business units. Investments Limited, the Company’s continuing development of directors. visited tea estates in Sri Lanka which • holding an annual ‘away-day’ focused on strategy; and majority shareholder. She was appointed supply tea to Twinings and two factories Papers for board and committee Board induction • receiving a strategy update from the Chief Executive and Director of Business in December 2011 to represent this which supply products to Primark. meetings are generally provided The Company provides all non-executive Development. shareholding on the board of the Richard Reid, in his capacity of Chair to directors a week in advance of directors with a tailored and thorough Acquisitions/disposals Company. The board considers that of the Audit committee, regularly visits the meetings. programme of induction, which is approving the entry into a yeast and bakery ingredients joint venture with Wilmar the other non-executive directors Primark in Dublin for meetings with • facilitated by the Chairman and the International in China, subject to regulatory clearances; Board committees are independent in character and finance and internal audit teams. The Company Secretary and which takes approving the acquisition of Anthony’s Goods; and The board has established three principal judgement and that they are each Chairman visited AB World Foods in • account of prior experience and business board committees, to which it has free from any business or other Leigh, meeting with local management • receiving regular updates on proposed acquisitions and disposals. perspectives and the committees on delegated certain of its responsibilities. relationships which would materially and getting an overview of the business. Financial and operational performance which he or she serves. Graham Allan, These are the Audit, Nomination and interfere with the exercise of their The Chairman and Chief Executive • receiving regular reports to the board from the Chief Executive; who joined the board in September Remuneration committees. The independent judgement. together visited: the Primark Gran Via • receiving, on a rolling basis, senior management presentations from each of the group 2018, met with senior management membership, responsibilities and store in Madrid, meeting with local business areas; The board considered Richard Reid’s across the business as part of his activities of these committees are and senior management teams; and • approving the group budget for the 2019/20 financial year; independence by reference to the induction. With the Chairman, he visited: described later in this Corporate Azucarera factories in La Baneza and • approving the Company’s full year and interim results; relevant provisions of the UK Corporate AB Enzymes’ site in Rajamaki, Finland; governance report and, in the case Benavente, meeting with local senior recommending the 2018 final dividend and approving the 2019 interim dividend; and Governance Code and concluded that he AB Vista in Marlborough; and Twinings • of the Remuneration committee, in management. The Chairman and is independent notwithstanding his past in Andover. With Ruth Cairnie and • approving banking mandate updates and various other treasury-related matters. the Remuneration report which starts Richard Reid each attended the relationship with KPMG, which was members of the Primark Ethical team, Governance and risk on page 83. Membership of these ABF CEO conference and the formerly the group’s auditor. It has now Graham visited community projects, • annual review of the material financial and non-financial risks facing the group’s committees is reviewed annually. Chairman also attended the Illovo been four years since KPMG ceased to suppliers and factories in Coimbatore, businesses; Minutes of committee meetings are Leadership Conference. be the Company’s auditor in November India. Graham also visited: Primark’s • scenario planning discussion of possible business effects of any political changes made available to all directors on a 2015, following a competitive tender for office in Dublin; Illovo Sugar in Durban, Information flow within the UK; timely basis. the external audit. Richard was formerly South Africa; and the Wissington sugar The Company Secretary manages the • half yearly review of progress in implementing actions arising from the 2018 board evaluation; The Chairs of the Audit, Nomination a partner at KPMG, retiring from that role factory and Riverside Glasshouse, also provision of information to the board and Remuneration committees were in September 2015. He had no personal visiting local sugar beet fields. at appropriate times in consultation • participating in the 2019 annual board performance evaluation and considering the present at the 2018 AGM and intend engagement with any business within with the Chairman and Chief Executive. report received on the review; Training and development to be present at this year’s AGM to the Associated British Foods group In addition to formal meetings, the • receiving regular updates on corporate governance and regulatory matters; The Chairman has overall responsibility answer questions on the work of during the four years prior to his Chairman and Chief Executive maintain • receiving reports from the board committee chairs; for ensuring that the directors receive their respective committees. appointment by the Company in regular contact with all directors. The • confirming directors’ independence and conflicts of interest; suitable training to enable them to carry April 2016. Chairman holds informal meetings with out their duties and is supported in this • reviewing and approving gender pay reporting and Modern Slavery Statement; and The written terms of reference for the non-executive directors, without any As at the date of this report, the by the Company Secretary. Directors are • undertaking appropriate preparations for the holding of the annual general meeting Audit, Nomination and Remuneration of the executives being present, to board comprises the Chairman, also encouraged personally to identify including considering and approving an ‘outlook’ statement and subsequently, committees are available on the discuss issues affecting the group, discussing issues arising from the annual general meeting. Chief Executive, Finance Director and any additional training requirements that Company’s website, www.abf.co.uk, when appropriate. Regular management five non-executive directors. Biographical would assist them in carrying out their Corporate responsibility and hard copies are available on request. updates are sent to directors to keep and related information about the role. Training is provided in briefing • approving the enhanced reporting on responsibility; the non-executive directors informed Effectiveness directors is set out on pages 68 and 69. papers, such as the regular update from • receiving regular management reports and an annual presentation on health, safety and of events throughout the group between Board composition the Company Secretary as part of the environmental issues; and Appointments to the board board meetings and to ensure that they At the date of this report, the board board pack ahead of each meeting • receiving updates on Primark ethical sourcing. There is a formal and transparent are advised of the latest issues affecting comprises the following directors: covering developments in legal, Investor relations and other stakeholder engagement procedure for the appointment of the group. regulatory and governance matters, • receiving reports on investor relations activities and regular feedback on directors’ Chairman new directors to the board. Details are and by way of presentations and meetings held with institutional investors; and Michael McLintock available in the Nomination committee meetings with senior executives • receiving reports from the designated non-executive director for engagement with the report on page 77 which also provides Executive directors or other external sources. workforce. George Weston (Chief Executive) details of the committee’s activities. People John Bason (Finance Director) Commitment • appointment of Ruth Cairnie as Senior Independent Director; Non-executive directors The letters of appointment for the • receiving a presentation on workforce engagement from the Group HR Director; Emma Adamo Chairman and the non-executive directors • appointment of Richard Reid as designated non-executive director for engagement Graham Allan set out the expected time commitment with the workforce; and Ruth Cairnie required of them and are available for • reviewing and approving share allocations for senior management and non-executive Wolfhart Hauser inspection by any person during normal director/committee chair fees. Richard Reid business hours at the Company’s registered office and at the AGM. Other significant commitments of the Chairman and non-executive directors are disclosed on appointment and require approval thereafter.

72 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 73

Corporate governance

Board performance evaluation 2019 evaluation A written report was prepared and An evaluation to assess the performance This year the board undertook a further sent to board members in advance of the board as a whole, its committees internal performance evaluation. The of the September board meeting. and the individual directors is conducted review was carried out during June and The recommended actions, listed below, annually with the aim of improving July of 2019 and was managed by arising from this year’s evaluation are the effectiveness of the board and Graham Allan, the most recently being implemented under the direction its members and the performance appointed independent non-executive of the Chairman. of the group. director, with the assistance of the Head of Secretariat. Priorities identified from the 2019 evaluation Progress from 2018 evaluation Board composition During the year, the Chairman oversaw The 2019 review involved each board • To continue to emphasise generalist the implementation and progression of member as well as the Company skills in board recruitment various recommendations arising from Secretary, the CEO of UK Grocery, the • Gender and racial diversity to be factors the 2018 evaluation, which included Group HR Director, the Head of Reward in board searches the actions set out below: and the Lead Audit Partner of our Workforce engagement and organisation external auditor. Each individual met Progress on 2018 objectives with Graham Allan and the Head of • To monitor and remain open to additional steps on workforce engagement People Secretariat to discuss various topics. To have more in-depth discussions The board has kept under review the board A discussion framework had been sent • about succession around the group succession plan as well as succession to to each of the participants in advance of as part of the annual board agenda key roles within the broader group, both at the meeting to enable them to consider • Board directors to have oral briefings the corporate centre and in the businesses. the topics before the meeting. The from the Group HR Director on specific In terms of engagement with the topics covered included the following: succession issues on request and prior workforce, good progress has been made, to any visits to businesses with Richard Reid having been appointed • The board (including Committee as designated non-executive director for meetings) – composition, tone and Board/Committee agendas engagement with the workforce and dynamics of meetings, rotation • To ensure additional time on individual having met with divisional CEOs to of topics, process for recruitment, business unit strategy issues (if required) reinforce this process, as well as with diversity, skills and experience • To ensure board members are fully HR directors. The board continues • Employees and organisation – briefed of key developments between to discuss succession planning and workforce engagement board meetings workforce engagement in an open manner. (bearing in mind the 2018 Code), Responsibility/ESG Corporate responsibility succession planning, visibility • To sustain momentum on progress Businesses have been required to include of organisation strength and communication of activities corporate responsibility priorities within • Responsibility/Environmental, Governance their presentations to the board. A new Social and Governance (ESG) – • To continue to monitor co-ordination format of responsibility report has been progress and communication of IT across divisions produced this year aimed at better of activities promoting the work that has been done • Governance – effectiveness of Overall, it was concluded that the board and is continuing to be done by the group. the board and committees, visibility and its committees were regarded as highly effective in providing oversight Meeting processes and management of key risks, of the Company and its governance, as Following up on the recommendations on-boarding, ongoing maintenance well as supporting appropriate growth from previous years, board members are of skills, training plans. There was mutual trust between generally content with the timing and • Individual directors – effectiveness content of board and committee papers of the Chairman and Senior the executives and non-executives with which are provided through the online Independent Director (bearing in a good balance of challenge and support. board pack system. mind that they have only been in Each director was considered to be making a valuable contribution and Board meetings are considered to be place for a relatively short period) demonstrating proper commitment, conducted with efficiency and in a manner which underwrites a collaborative yet including time, to their respective roles. appropriately challenging spirit.

74 Associated British Foods plc Annual Report and Accounts 2019

Governance Corporate governance

Board performance evaluation 2019 evaluation A written report was prepared and Conflicts of interest procedure Business model The directors confirm that there is a An evaluation to assess the performance This year the board undertook a further sent to board members in advance The Company has procedures in place A description of the Company’s process for identifying, evaluating and of the board as a whole, its committees internal performance evaluation. The of the September board meeting. to deal with the situation where a business model for sustainable growth managing the risks faced by the group and the individual directors is conducted review was carried out during June and The recommended actions, listed below, director has a conflict of interest. is set out in the group business model and the operational effectiveness of the annually with the aim of improving July of 2019 and was managed by arising from this year’s evaluation are As part of this process, the board: and strategy section on pages 8 and 9 related controls, which has been in place the effectiveness of the board and Graham Allan, the most recently being implemented under the direction and in the business strategy sections for the year under review and up to the considers each conflict situation its members and the performance appointed independent non-executive of the Chairman. • of the operating review on pages 12 date of approval of the annual report. separately on its particular facts; of the group. director, with the assistance of the to 49. These sections provide an They also confirm that they have Priorities identified from the 2019 evaluation considers the conflict situation in Head of Secretariat. • explanation of the basis on which the regularly monitored the effectiveness Progress from 2018 evaluation Board composition conjunction with the rest of the group generates value and preserves of the risk management and internal During the year, the Chairman oversaw The 2019 review involved each board conflicted director’s duties under • To continue to emphasise generalist it over the long term and its strategy control systems (which cover all material the implementation and progression of member as well as the Company the Companies Act 2006; skills in board recruitment for delivering its objectives. controls including financial, operational various recommendations arising from Secretary, the CEO of UK Grocery, the • Gender and racial diversity to be factors • keeps records and board minutes and compliance controls) utilising the the 2018 evaluation, which included Group HR Director, the Head of Reward Going concern and viability in board searches as to authorisations granted review process set out below. the actions set out below: and the Lead Audit Partner of our After making enquiries the directors Workforce engagement and organisation by directors and the scope of any external auditor. Each individual met approvals given; and have a reasonable expectation that the Standards Progress on 2018 objectives • To monitor and remain open to additional with Graham Allan and the Head of regularly reviews conflict authorisation. Company and the group have adequate There are guidelines on the minimum steps on workforce engagement • People Secretariat to discuss various topics. resources to continue in operational group-wide requirements for health and To have more in-depth discussions The board has kept under review the board A discussion framework had been sent • Accountability existence for a period of at least safety and environmental standards. about succession around the group succession plan as well as succession to to each of the participants in advance of Financial and business reporting 12 months from the date of approval There are also guidelines on the as part of the annual board agenda key roles within the broader group, both at the meeting to enable them to consider The board recognises that its of these annual financial statements. minimum level of internal control that • Board directors to have oral briefings the corporate centre and in the businesses. the topics before the meeting. The responsibility to present a fair, balanced Accordingly, and consistent with the each of the divisions should exercise from the Group HR Director on specific and understandable assessment In terms of engagement with the topics covered included the following: succession issues on request and prior guidance contained in the document over specified processes. Each business workforce, good progress has been made, extends to interim and other price- titled ‘Guidance on Risk Management, has developed and documented policies The board (including Committee to any visits to businesses with Richard Reid having been appointed • sensitive public reports, reports to Internal Control and Related Financial and procedures to comply with the meetings) – composition, tone and Board/Committee agendas as designated non-executive director for regulators, and information required and Business Reporting’ published by minimum control standards established, dynamics of meetings, rotation To ensure additional time on individual engagement with the workforce and • to be presented by statutory requests. the FRC in 2014, they continue to adopt including procedures for monitoring of topics, process for recruitment, business unit strategy issues (if required) having met with divisional CEOs to the going concern basis in preparing compliance and taking corrective action. diversity, skills and experience To ensure board members are fully We consider the annual report and reinforce this process, as well as with • the annual financial statements. The board of each business is required to HR directors. The board continues briefed of key developments between financial statements, taken as a • Employees and organisation – confirm twice yearly that it has complied to discuss succession planning and workforce engagement board meetings whole, are fair, balanced and The Code requires the directors to understandable and provide the with these policies and procedures. workforce engagement in an open manner. (bearing in mind the 2018 Code), Responsibility/ESG assess and report on the prospects information necessary for shareholders Corporate responsibility succession planning, visibility • To sustain momentum on progress of the group over a longer period. High level controls to assess the Company’s position and of organisation strength and communication of activities This longer-term viability statement All businesses prepare annual operating Businesses have been required to include performance, business model and • Responsibility/Environmental, Governance is set out on page 67. plans and budgets which are updated corporate responsibility priorities within strategy. The Company produced their presentations to the board. A new Social and Governance (ESG) – regularly. Performance against budget • To continue to monitor co-ordination a paper in this respect, which was Risk management and internal control format of responsibility report has been progress and communication is monitored at business unit level and of IT across divisions presented to the Audit committee. The board acknowledges its overall produced this year aimed at better of activities centrally, with variances being reported responsibility for monitoring the group’s promoting the work that has been done Governance – effectiveness of Overall, it was concluded that the board promptly. The cash position at group and • risk management and internal control and is continuing to be done by the group. the board and committees, visibility and its committees were regarded as business level is monitored constantly systems to facilitate the identification, and management of key risks, highly effective in providing oversight and variances from expected levels are Meeting processes assessment and management of risk on-boarding, ongoing maintenance of the Company and its governance, as investigated thoroughly. Following up on the recommendations and the protection of shareholders’ of skills, training well as supporting appropriate growth from previous years, board members are investments and the group’s assets. Clearly defined guidelines have been Individual directors – effectiveness plans. There was mutual trust between generally content with the timing and • The directors recognise that they are established for capital expenditure and of the Chairman and Senior the executives and non-executives with content of board and committee papers responsible for providing a return to investment decisions. These include Independent Director (bearing in a good balance of challenge and support. which are provided through the online shareholders, which is consistent the preparation of budgets, appraisal board pack system. mind that they have only been in Each director was considered to be making a valuable contribution and with the responsible assessment and and review procedures and delegated Board meetings are considered to be place for a relatively short period) demonstrating proper commitment, mitigation of risks. authority levels. conducted with efficiency and in a manner which underwrites a collaborative yet including time, to their respective roles. appropriately challenging spirit.

74 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 75

Corporate governance

Financial reporting The group’s Director of Financial The board confirmed that it was satisfied Detailed management accounts are Control meets with the Chair of the that the systems and processes were prepared every four weeks, consolidated Audit committee as appropriate but at functioning effectively and complied in a single system and reviewed by least quarterly, without the presence of with the requirements of the 2016 Code. senior management and the board. executive management, and has direct Remuneration They include a comprehensive set of access to the Chairman of the board. A separate Remuneration report is set financial reports and key performance Assessment of principal risks out on pages 83 to 106 which provides indicators covering commercial, The directors confirm that, during details of our remuneration policy and operational, environmental and people the year, the board has carried out a how it has been implemented, together issues. Performance against budgets thorough assessment of the principal with the activities of the Remuneration and forecasts is discussed regularly risks facing the group, including those committee and proposed changes to at board meetings and at meetings that could threaten its business model, the remuneration policy. between operational and group future performance, solvency or management. The adequacy and Articles of association and share liquidity, together with emerging risks. suitability of key performance indicators is capital A description of the principal risks and reviewed regularly. All chief executives Information in relation to share capital, how they are being managed and and finance directors of the group’s the appointment and powers of mitigated is set out on pages 62 to 66. operations are asked to sign an annual directors, the issue and buy back of confirmation that their business has Annual review of the effectiveness shares and significant interests in share complied with the Group Accounting of the systems capital is set out in the Directors’ report Manual in the preparation of consolidated During the year, the board reviewed the on pages 107 to 109. financial statements and specifically effectiveness of the group’s systems of Relations with shareholders to confirm the adequacy and accuracy risk management and internal control Individual shareholders of accounting provisions. processes embracing all material We have a number of individual systems, including financial, operational Internal audit shareholders. All are invited to and compliance controls, to ensure that The group’s businesses employ internal the annual general meeting, have they remain robust. The review covered auditors (both employees and resources access to our website and receive the financial year to 14 September 2019 provided by major accounting firms electronic communications. We have and the period to the date of approval of other than the firm involved in the audit a dedicated in-house team to manage this annual report. The review included: of the group (except where expressly communications with our shareholders, permitted by the Audit committee)) • the annual risk management review, making sure we respond directly, as with skills and experience relevant to a comprehensive process identifying appropriate, to any matters regarding the operation of each business. All of the the key external and operational risks their shareholdings. We also have a internal audit activities are co-ordinated facing the group and the controls and dedicated team at Equiniti (our share centrally by the group’s Director of activities in place to mitigate them, the registrar) which looks after their needs. Financial Control, who is accountable findings of which are discussed with To improve security and efficiency of to the Audit committee. each member of the board individually communications and to reduce the (refer to the risk management section amount of paper we use, our default All group businesses are required to on pages 62 to 66 for details of the method of communications with comply with the group’s financial control process undertaken); and shareholders is e-communications. framework that sets out minimum We also encourage the direct payment control standards. A key function of the • the annual assessment of internal of dividends into bank or building group’s internal audit resources is to control, which, following consideration society accounts. undertake audits to ensure compliance by the Audit committee, provided assurance to the board around with the financial control framework Institutional shareholders the control environment and and make recommendations for During the year, the board has processes in place around the group, improvement in controls where maintained an active programme of specifically those relating to internal appropriate. Internal audit also conducts engagement with institutional investors, financial control. regular reviews to ensure that risk the purpose of which is both to develop management procedures and controls The board evaluated the effectiveness shareholders’ understanding of the are observed. The Audit committee of management’s processes for Company’s strategy, operations and receives regular reports on the results monitoring and reviewing risk performance and to provide the board of internal audit’s work and monitors management and internal control. with an awareness of the views of the status of recommendations arising. No significant failings or weaknesses significant shareholders. At each board The committee reviews annually the were identified by the review and the meeting, the directors are briefed adequacy, qualifications and experience board is satisfied that, where areas of on shareholder meetings that have of the group’s internal audit resources improvement were identified, processes taken place and on feedback received, and the nature and scope of internal are in place to ensure that remedial including any significant concerns raised. audit activity in the overall context of action is taken and progress monitored. the group’s risk management system.

76 Associated British Foods plc Annual Report and Accounts 2019

Governance Corporate governance

Financial reporting The group’s Director of Financial The board confirmed that it was satisfied Relations with shareholders continued Board committees Detailed management accounts are Control meets with the Chair of the that the systems and processes were Here are some of the ways in which we engage with our shareholders: prepared every four weeks, consolidated Audit committee as appropriate but at functioning effectively and complied Annual general meeting in a single system and reviewed by least quarterly, without the presence of with the requirements of the 2016 Code. Nomination committee report The AGM provides an opportunity for directors to engage with shareholders, answer senior management and the board. executive management, and has direct Members Remuneration their questions and to meet them informally. The 2019 AGM will be held on Friday They include a comprehensive set of access to the Chairman of the board. A separate Remuneration report is set 6 December 2019 at 11.00 am at the Congress Centre in London. We encourage those At the date of this report, the following financial reports and key performance Assessment of principal risks out on pages 83 to 106 which provides who cannot attend to vote by proxy on all resolutions put forward. All votes are taken are members of the committee: indicators covering commercial, The directors confirm that, during details of our remuneration policy and by a poll. In 2018, voting levels at the AGM were over 80% of the Company’s issued Michael McLintock (Chair) operational, environmental and people the year, the board has carried out a how it has been implemented, together share capital. Ruth Cairnie issues. Performance against budgets thorough assessment of the principal with the activities of the Remuneration Annual report Richard Reid and forecasts is discussed regularly risks facing the group, including those committee and proposed changes to We publish a full annual report and accounts each year which contains a strategic report, Wolfhart Hauser at board meetings and at meetings that could threaten its business model, the remuneration policy. responsibility section, governance section and financial statements. The annual report is All members served on the between operational and group future performance, solvency or available in paper format and on our website: www.abf.co.uk. committee throughout the year. management. The adequacy and Articles of association and share liquidity, together with emerging risks. Responsibility/ESG suitability of key performance indicators is capital Meetings A description of the principal risks and We publish a responsibility report every three years with an update report each year in reviewed regularly. All chief executives Information in relation to share capital, The committee met once during the how they are being managed and between. The Company Secretary acts as a focal point for communications on matters and finance directors of the group’s the appointment and powers of year under review. mitigated is set out on pages 62 to 66. of corporate responsibility. During the year, the Company responded to requests for operations are asked to sign an annual directors, the issue and buy back of meetings, telephone meetings or written information from both existing and potential Primary responsibilities confirmation that their business has Annual review of the effectiveness shares and significant interests in share shareholders and research bodies on a broad range of environmental, social and In accordance with its terms complied with the Group Accounting of the systems capital is set out in the Directors’ report governance risk matters including matters related to climate change, water and of reference, the Nomination Manual in the preparation of consolidated During the year, the board reviewed the on pages 107 to 109. greenhouse gas risk management, supply chain management, animal welfare, committee’s primary financial statements and specifically effectiveness of the group’s systems of sustainable agriculture, human rights, employee welfare, gender balance and human Relations with shareholders responsibilities include: to confirm the adequacy and accuracy risk management and internal control capital development. Individual shareholders • leading the process for board of accounting provisions. processes embracing all material Meetings We have a number of individual appointments and making systems, including financial, operational The Chairman issues an invitation each year to the Company’s largest institutional Internal audit shareholders. All are invited to recommendations to the board; and compliance controls, to ensure that shareholders to hear their views and discuss any issues or concerns. During the year, The group’s businesses employ internal the annual general meeting, have • regularly reviewing the board they remain robust. The review covered the Chairman held meetings with a number of institutional shareholders and discussed auditors (both employees and resources access to our website and receive structure, size and composition the financial year to 14 September 2019 a range of topics including the Company’s strategy and approach to governance provided by major accounting firms electronic communications. We have (including skills, knowledge, and the period to the date of approval of and remuneration-related matters (taking into account proposed changes to the other than the firm involved in the audit a dedicated in-house team to manage independence, experience and this annual report. The review included: remuneration policy). of the group (except where expressly communications with our shareholders, diversity), recommending any On the day of the announcement of the interim and final results, the Company’s necessary changes; permitted by the Audit committee)) • the annual risk management review, making sure we respond directly, as largest shareholders, together with financial analysts, are invited to a presentation with a considering plans for orderly with skills and experience relevant to a comprehensive process identifying appropriate, to any matters regarding • question and answer session by the Chief Executive and Finance Director, with webcast succession for appointments to the the operation of each business. All of the the key external and operational risks their shareholdings. We also have a presentations of the results available for all shareholders through the Company’s website. board and to senior management internal audit activities are co-ordinated facing the group and the controls and dedicated team at Equiniti (our share Following the results, the executive team hold one-to-one and group meetings with to maintain an appropriate balance centrally by the group’s Director of activities in place to mitigate them, the registrar) which looks after their needs. institutional shareholders and potential investors. These views are then reported back of skills and experience within the Financial Control, who is accountable findings of which are discussed with To improve security and efficiency of to the board as a whole at the nearest following board meeting to ensure that they are Company and to ensure progressive to the Audit committee. each member of the board individually communications and to reduce the aware of what the Company’s largest shareholders are concerned with, or not as the case refreshment of the board; (refer to the risk management section amount of paper we use, our default may be. All group businesses are required to • keeping under review the on pages 62 to 66 for details of the method of communications with Press releases comply with the group’s financial control leadership needs of the group, process undertaken); and shareholders is e-communications. framework that sets out minimum We issue press releases for all substantive news relating to Associated British Foods. both executive and non-executive, We also encourage the direct payment You can find these on our website: www.abf.co.uk. control standards. A key function of the • the annual assessment of internal to ensure the organisation of dividends into bank or building Results announcements competes efficiently in the group’s internal audit resources is to control, which, following consideration society accounts. marketplace; and undertake audits to ensure compliance by the Audit committee, provided We release a full set of financial and operational results at the interim and full year stage. assurance to the board around We release trading statements at the first and third quarter stages with reduced • being responsible for identifying with the financial control framework Institutional shareholders the control environment and disclosure, whilst still providing sufficient detail to allow investors to model and value and nominating, for the approval and make recommendations for During the year, the board has processes in place around the group, our business. of the board, candidates to fill board improvement in controls where maintained an active programme of vacancies as and when they arise. specifically those relating to internal Website (www.abf.co.uk) appropriate. Internal audit also conducts engagement with institutional investors, financial control. Our website is regularly updated and contains a comprehensive range of information on regular reviews to ensure that risk the purpose of which is both to develop our Company. There is a section dedicated to investors which includes our investor management procedures and controls shareholders’ understanding of the The board evaluated the effectiveness calendar, financial results, presentations, press releases and contact details. The area are observed. The Audit committee of management’s processes for Company’s strategy, operations and dedicated to individual shareholders is an essential communication method. It includes receives regular reports on the results monitoring and reviewing risk performance and to provide the board information on shareholder news, administrative services and contact information. of internal audit’s work and monitors management and internal control. with an awareness of the views of the status of recommendations arising. No significant failings or weaknesses significant shareholders. At each board The committee reviews annually the were identified by the review and the meeting, the directors are briefed adequacy, qualifications and experience board is satisfied that, where areas of on shareholder meetings that have of the group’s internal audit resources improvement were identified, processes taken place and on feedback received, and the nature and scope of internal are in place to ensure that remedial including any significant concerns raised. audit activity in the overall context of action is taken and progress monitored. the group’s risk management system.

76 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 77

Corporate governance

Committee activities during the year Performance evaluation Diversity Succession planning The committee’s effectiveness As a board, we recognise that diversity Given the relatively recent changes to was reviewed as part of the board’s is important for introducing different the board with the appointment of the performance evaluation process which perspectives into board debate and current Chairman in April 2018, the was carried out during June and July decision-making and that this is a wider appointment of Graham Allan as a new of 2019. This evaluation concluded issue than just gender and ethnicity. independent non-executive director in that the committee was continuing We believe that members of the September 2018 and the appointment to function effectively. board should collectively possess of Ruth Cairnie as Senior Independent a diverse range of skills, expertise, Governance Director in late 2018, the focus this year industry knowledge, business and Members of the Nomination committee has been on consolidating existing board other experience necessary for the are appointed by the board from responsibilities. Priorities identified for effective oversight of the group. amongst the directors of the Company, 2019 include continuing to emphasise in consultation with the Chairman. Accordingly, the board has decided generalist skills in board recruitment The committee comprises a minimum not to set any measurable objectives and continuing to factor in gender of three members at any time, a majority in relation to diversity. The Nomination and racial diversity. of whom are independent non-executive committee considers diversity as one As noted in last year’s report, the directors. A quorum consists of two of many factors when recommending Company engaged Spencer Stuart, members being either two independent new appointments to the board, an external executive search and non-executive directors or one although gender and ethnicity remain leadership consulting firm and a independent non-executive director important factors and are a factor signatory to the ‘Voluntary Code of and the Chairman. in searches for new candidates, as Conduct for Executive Search Firms’ identified in our priorities for 2019. Only members of the committee on gender diversity and best practice, It continues to be our policy to ask any have the right to attend committee to help identify potential candidates executive search agencies engaged meetings. Other individuals such as as part of a process of progressive to ensure that half of the candidates the Chief Executive, members of refreshment of the board. That process they put forward for consideration senior management, Group HR resulted in Graham Allan joining the are women. Director and external advisers may board with effect from 5 September be invited to attend meetings as We recognise that our approach of not 2018. In March 2019, the Chairman and when appropriate. setting a target, but instead focussing joined the advisory board of Spencer on initiatives to achieve no barriers Stuart. Spencer Stuart is otherwise The committee may take independent to talent, means that we are unlikely independent of the Company. professional advice on any matters to meet the 2020 expectations of the covered by its terms of reference at Re-election of non-executive directors Hampton-Alexander Review. However, the Company’s expense. The committee members reviewed we believe that our approach is right the results of the annual board The committee Chair reports the for the decentralised structure of our performance evaluation that related outcome of meetings to the board. broader business and will continue to to the composition of the board and deliver a strong, stable and increasingly the time needed to fulfil the roles of The terms of reference of the balanced senior team. Chairman, Senior Independent Director Nomination committee are available For details of diversity as it applies to and non-executive director. Wolfhart on the Investors section of the the group’s wider workforce, please Hauser, independent non-executive Company’s website: www.abf.co.uk. see pages 56 and 57. director of the Company, stepped down Board appointments process from the role of Chair of FirstGroup plc The process for making new with effect from 25 July 2019. Ruth appointments is led by the Chair. Cairnie, Senior Independent Director of Where appropriate, external, the Company, was appointed Chair of independent consultants are engaged Babcock International Group PLC in July to conduct a search for potential 2019. Ruth stepped down from the candidates, who are considered on board of ContourGlobal plc with effect the basis of their skills, experience from 30 September 2019 and it has and fit with the existing members of also been announced that Ruth will the board. The Nomination committee be stepping down from the board has procedures for appointing a of Rolls-Royce Holdings plc on non-executive or an executive director 31 December 2019. and these are set out in its terms The committee members considered of reference. the re-election of directors prior to their recommended approval by shareholders at the annual general meeting.

78 Associated British Foods plc Annual Report and Accounts 2019

Governance Corporate governance

Committee activities during the year Performance evaluation Diversity Governance Audit committee report Internal financial controls Succession planning The committee’s effectiveness As a board, we recognise that diversity The Audit committee comprises a • reviewing the effectiveness of the Given the relatively recent changes to was reviewed as part of the board’s is important for introducing different Members minimum of three members, all of group’s internal financial controls, the board with the appointment of the performance evaluation process which perspectives into board debate and whom are independent non-executive During the year and as at the date including the policies and overall current Chairman in April 2018, the was carried out during June and July decision-making and that this is a wider directors of the Company. Two of this report, members and Chair of process for assessing established appointment of Graham Allan as a new of 2019. This evaluation concluded issue than just gender and ethnicity. the committee have been as follows: members constitute a quorum. systems of internal financial control independent non-executive director in that the committee was continuing We believe that members of the Richard Reid (Chair) and timeliness and effectiveness The committee Chair fulfilled the September 2018 and the appointment to function effectively. board should collectively possess Graham Allan of corrective action taken by requirement that there must be at least of Ruth Cairnie as Senior Independent a diverse range of skills, expertise, Governance Ruth Cairnie management; one member with recent and relevant Director in late 2018, the focus this year industry knowledge, business and Members of the Nomination committee Wolfhart Hauser financial experience and competence in has been on consolidating existing board other experience necessary for the Whistleblowing and fraud are appointed by the board from accounting or auditing (or both) during responsibilities. Priorities identified for effective oversight of the group. Primary responsibilities overseeing the group’s policies, amongst the directors of the Company, • the year. In addition, the committee as 2019 include continuing to emphasise procedures and controls for in consultation with the Chairman. Accordingly, the board has decided In accordance with its terms of a whole has competence in the sectors generalist skills in board recruitment preventing bribery, identifying The committee comprises a minimum not to set any measurable objectives reference, the Audit committee’s in which the Company operates. All and continuing to factor in gender money laundering, and the group’s of three members at any time, a majority in relation to diversity. The Nomination primary responsibilities include: committee members are expected to and racial diversity. arrangements for whistleblowing; of whom are independent non-executive committee considers diversity as one be financially literate and to have an Financial reporting As noted in last year’s report, the directors. A quorum consists of two of many factors when recommending Internal audit understanding of the following areas: • monitoring the integrity of the Company engaged Spencer Stuart, members being either two independent new appointments to the board, • monitoring and reviewing the group’s financial statements and • the principles of, and developments an external executive search and non-executive directors or one although gender and ethnicity remain effectiveness and independence of any formal announcements relating in, financial reporting including the leadership consulting firm and a independent non-executive director important factors and are a factor the group’s internal audit function to the Company’s performance, applicable accounting standards and signatory to the ‘Voluntary Code of and the Chairman. in searches for new candidates, as in the context of the group’s overall reviewing significant financial statements of recommended practice; Conduct for Executive Search Firms’ identified in our priorities for 2019. financial risk management system; Only members of the committee reporting judgements contained • key aspects of the Company’s on gender diversity and best practice, It continues to be our policy to ask any considering and approving the have the right to attend committee in them before their submission • operations including corporate policies to help identify potential candidates executive search agencies engaged meetings. Other individuals such as to the board; remit of the internal audit function, as part of a process of progressive to ensure that half of the candidates and the group’s internal the Chief Executive, members of informing the board of the ensuring it has adequate resources refreshment of the board. That process they put forward for consideration • control environment; senior management, Group HR outcome of the group’s external and appropriate access to resulted in Graham Allan joining the are women. • matters which may influence the Director and external advisers may audit and explaining how it information to enable it to perform board with effect from 5 September presentation of accounts and key figures; be invited to attend meetings as We recognise that our approach of not contributed to the integrity its function effectively; and 2018. In March 2019, the Chairman • the principles of, and developments in, and when appropriate. setting a target, but instead focussing of financial reporting; joined the advisory board of Spencer External audit company law, sector-specific laws and on initiatives to achieve no barriers • reviewing and challenging, where other relevant corporate legislation; Stuart. Spencer Stuart is otherwise The committee may take independent • overseeing the relationship to talent, means that we are unlikely necessary, the consistency of, the role of internal and external independent of the Company. professional advice on any matters with the group’s external auditor, • to meet the 2020 expectations of the and changes to, accounting and auditing and risk management; and covered by its terms of reference at including reporting to the board Re-election of non-executive directors Hampton-Alexander Review. However, treasury policies; whether the the Company’s expense. each year whether it considers • the regulatory framework for the The committee members reviewed we believe that our approach is right group has followed appropriate the audit contract should be put group’s businesses. the results of the annual board The committee Chair reports the for the decentralised structure of our accounting policies and made out to tender, adhering to any The committee as a whole has performance evaluation that related outcome of meetings to the board. broader business and will continue to appropriate estimates and legal requirements for tendering competence relevant to the sectors to the composition of the board and deliver a strong, stable and increasingly judgements; the clarity and or rotation of the audit services The terms of reference of the in which the group operates. the time needed to fulfil the roles of balanced senior team. completeness of disclosure; contract as appropriate, reviewing Chairman, Senior Independent Director Nomination committee are available significant adjustments resulting For details of diversity as it applies to and monitoring the external The committee invites the Group Finance and non-executive director. Wolfhart on the Investors section of the from the audit; the going the group’s wider workforce, please auditor’s objectivity and Director, Group Financial Controller, Hauser, independent non-executive Company’s website: www.abf.co.uk. concern assumption, the viability see pages 56 and 57. independence, agreeing the Director of Financial Control and senior director of the Company, stepped down Board appointments process statement, and compliance scope of their work and fees representatives of the external auditor from the role of Chair of FirstGroup plc The process for making new with accounting standards; paid to them for audit, assessing to attend its meetings in full, although with effect from 25 July 2019. Ruth it reserves the right to request any of appointments is led by the Chair. Narrative reporting the effectiveness of the audit Cairnie, Senior Independent Director of Where appropriate, external, process, and agreeing the policy these individuals to withdraw. Other • at the board’s request, reviewing the Company, was appointed Chair of independent consultants are engaged senior managers are invited to present the content of the annual report and in relation to the provision of Babcock International Group PLC in July to conduct a search for potential such reports as are required for the accounts and advising the board on non-audit services. 2019. Ruth stepped down from the candidates, who are considered on committee to discharge its duties. whether, taken as a whole, it is fair, board of ContourGlobal plc with effect the basis of their skills, experience balanced and understandable and During the year, the committee held from 30 September 2019 and it has and fit with the existing members of provides the information necessary four meetings with the external auditor also been announced that Ruth will the board. The Nomination committee for shareholders to assess without any executive members of be stepping down from the board has procedures for appointing a the Company’s position and the board being present. of Rolls-Royce Holdings plc on non-executive or an executive director performance, business model 31 December 2019. and these are set out in its terms The committee has unrestricted and strategy; of reference. access to Company documents and The committee members considered • where requested by the board, information, as well as to employees of the re-election of directors prior to their assisting in relation to the board’s the Company and the external auditor. recommended approval by shareholders assessment of the principal at the annual general meeting. risks facing the Company and the The committee may take independent prospects of the Company for the professional advice on any matters purposes of disclosures required covered by its terms of reference in the annual report and accounts; at the Company’s expense. The committee Chairman reports the outcome of meetings to the board.

78 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 79

Corporate governance

The committee’s effectiveness was During the year it formally reviewed Significant accounting issues reviewed during the second half of the group’s interim and annual reports. considered by the Audit the year as part of the board’s annual These reviews considered: committee in relation to the performance evaluation. A description group’s financial statements • the description of performance in the of how the evaluation was conducted A key responsibility of the committee annual report to ensure it was fair, is set out on page 74 of the corporate is to consider the significant areas of balanced and understandable; governance report. complexity, management judgement the accounting principles, policies • and estimation that have been applied The terms of reference of the Audit and practices adopted in the group’s in the preparation of the financial committee can be viewed on the financial statements, any proposed statements. The committee has, with Investors section of the Company’s changes to them, and the adequacy support from Ernst & Young LLP (‘EY’) website: www.abf.co.uk. of their disclosure. This included as external auditor, reviewed the preparation for the adoption of IFRS Meetings suitability of the accounting policies 16 Leases from the next financial The Audit committee met four times which have been adopted and whether year and the disclosures in this during the year. The committee’s management has made appropriate year’s interim and annual reports; agenda is linked to events in the estimates and judgements. group’s financial calendar. • important accounting issues or areas of complexity, the actions, estimates Set out below are the significant areas of Activities during the year and judgements of management accounting judgement or management In order to fulfil its terms of reference, in relation to financial reporting estimation and a description of how the Audit committee receives and and in particular the assumptions the committee concluded that such reviews presentations and reports underlying the going concern judgements and estimates were from the group’s senior management, and viability statements; appropriate. These are divided between consulting as necessary with the • any significant adjustments to financial those that could have a material impact external auditor. reporting arising from the audit; and on the financial statements and those Monitoring the integrity of • tax contingencies, compliance that are less likely to have a material reported financial information with statutory tax obligations and impact but nevertheless, by their nature, Ensuring the integrity of the the group’s tax policy. required a degree of estimation. financial statements and associated announcements is a fundamental responsibility of the Audit committee.

Areas of significant accounting judgement and estimation material to the group financial statements Audit committee assurance Impairment of goodwill, intangible The committee considered the reasonableness of cash flow projections which were and tangible assets based on the most recent budget approved by the board and reflected management’s Assessment for impairment involves expectations of sales growth, operating costs and margins based on past experience comparing the book value of an asset with and external sources of information. Long-term growth rates for periods not covered its recoverable amount, being the higher by the annual budget were challenged to ensure they were appropriate for the products, of value in use and fair value less costs industries and countries in which the relevant cash generating units operate. The to sell. Value in use is determined with committee also reviewed and challenged the key assumptions made in deriving these reference to projected future cash flows projections: discount rates, growth rates, and expected changes in production and sales discounted at an appropriate rate. Both volumes, selling prices and direct costs. The committee also considered the adequacy the cash flows and the discount rate of the disclosures in respect of the key assumptions and sensitivities. Refer to notes 8 involve a significant degree of and 9 to the financial statements for more details of these assumptions. estimation uncertainty. The committee was satisfied that the discount rate assumptions appropriately reflected current market assessments of the time value of money and the risks associated with the particular assets. The other key assumptions were all considered to be reasonable. The external auditor undertook an independent audit of the estimate of value in use and fair value less costs to sell, including a challenge of management’s underlying cash flow projections, long-term growth assumptions and discount rates. On the basis of their audit work, and their challenge of the key assumptions and associated sensitivities, they considered that the £65m impairment charge to the tangible fixed assets of Allied Bakeries was appropriately recognised and that no further impairments were required. Tax provisions The committee reviews the Company’s tax policy and principles for managing The level of current and deferred tax tax risks annually. recognised in the financial statements The committee reviewed and challenged the provisions recorded and the contingent is dependent on subjective judgements liabilities disclosed at the balance sheet date and management confirmed that they as to the outcome of decisions by tax represent their best estimate of the financial exposure faced by the group. authorities in various jurisdictions around the world and the ability of the group to The external auditor explained to the committee the work they had conducted during the year, use tax losses within the time limits including how their audit procedures were focused on those provisions requiring the highest imposed by the various tax authorities. degree of judgement. The committee discussed with both management and the external See also reference to taxation on page 51. auditor the key judgements which had been made. It was satisfied that the judgements were reasonable and that, accordingly, the provision amounts recorded were appropriate.

80 Associated British Foods plc Annual Report and Accounts 2019

Governance Corporate governance

The committee’s effectiveness was During the year it formally reviewed Significant accounting issues Areas of significant accounting judgement reviewed during the second half of the group’s interim and annual reports. considered by the Audit and estimation material to the group the year as part of the board’s annual These reviews considered: committee in relation to the financial statements Audit committee assurance performance evaluation. A description group’s financial statements Leases The committee received updates from management outlining the effect of the new standard, • the description of performance in the of how the evaluation was conducted A key responsibility of the committee The group will adopt IFRS 16 Leases including the judgements and key assumptions used in the estimation of the impact. annual report to ensure it was fair, is set out on page 74 of the corporate is to consider the significant areas of from the next financial year and the balanced and understandable; The committee reviewed the judgement applied in identifying lease arrangements and the governance report. complexity, management judgement effects of transition to this new accounting the accounting principles, policies reasonableness of lease terms determined by management including their assessments • and estimation that have been applied standard are set out in the Significant The terms of reference of the Audit and practices adopted in the group’s of options to terminate and extend leases. The committee was satisfied that the discount in the preparation of the financial Accounting Policies. Judgement is required rate assumptions appropriately reflected current market assessments of the incremental committee can be viewed on the financial statements, any proposed statements. The committee has, with in determining the term of each lease, borrowing rate for each of the group’s subsidiaries in respect of their lease commitments. Investors section of the Company’s changes to them, and the adequacy support from Ernst & Young LLP (‘EY’) the discount rate used to value the lease website: www.abf.co.uk. of their disclosure. This included liabilities and right-of-use assets disclosed The external auditor undertook an assessment of management’s assumptions, using as external auditor, reviewed the preparation for the adoption of IFRS and in identifying lease arrangements independent experts, and considered that the transition disclosure in respect of the Meetings suitability of the accounting policies 16 Leases from the next financial under the scope of IFRS 16. adoption of IFRS 16 from the next financial year was appropriate. The Audit committee met four times which have been adopted and whether year and the disclosures in this during the year. The committee’s management has made appropriate Other accounting areas requiring year’s interim and annual reports; management judgement or estimation Audit committee assurance agenda is linked to events in the estimates and judgements. group’s financial calendar. • important accounting issues or areas Post-retirement benefits Actuarial valuations of the group’s pension scheme obligations are undertaken every three of complexity, the actions, estimates Set out below are the significant areas of Valuation of the group’s pension schemes years by independent qualified actuaries who also provide advice to management on the Activities during the year and judgements of management accounting judgement or management and post-retirement medical benefit assumptions to be used in preparing the accounting valuations each year. Details of the In order to fulfil its terms of reference, in relation to financial reporting estimation and a description of how schemes require various subjective assumptions made in the current and previous year are disclosed in note 11 of the financial the Audit committee receives and and in particular the assumptions the committee concluded that such judgements to be made including statements together with the bases on which those assumptions have been made. reviews presentations and reports judgements and estimates were underlying the going concern mortality assumptions, discount rates, The committee reviewed the assumptions by comparison with externally derived data from the group’s senior management, and viability statements; appropriate. These are divided between general and salary inflation, and the and also considered the adequacy of disclosures in respect of the sensitivity of the surplus consulting as necessary with the • any significant adjustments to financial those that could have a material impact rate of increase for pensions in payment or deficit to changes in these key assumptions. external auditor. reporting arising from the audit; and on the financial statements and those and those in deferment. Monitoring the integrity of • tax contingencies, compliance that are less likely to have a material Misstatements • an assessment of business The Chair of the committee met reported financial information with statutory tax obligations and impact but nevertheless, by their nature, Management reported to the committee continuity plans in place in the with the Director of Financial Control Ensuring the integrity of the the group’s tax policy. required a degree of estimation. that they were not aware of any group’s businesses; regularly during the year to monitor financial statements and associated material or immaterial misstatements • reports on fraud perpetrated the effectiveness of the internal announcements is a fundamental made intentionally to achieve a particular against the group; audit function, receiving updates responsibility of the Audit committee. presentation. The external auditor • the group’s approach to anti-bribery on audit progress and statistics on Areas of significant accounting judgement reported to the committee the and corruption, and whistleblowing; outstanding issues. and estimation material to the group misstatements that they had found the group’s approach to IT and • Whistleblowing and fraud financial statements Audit committee assurance in the course of their work. After cybersecurity; and The group’s Whistleblowing Policy Impairment of goodwill, intangible The committee considered the reasonableness of cash flow projections which were due consideration the committee reports on significant systems • contains arrangements for an and tangible assets based on the most recent budget approved by the board and reflected management’s concurred with management that these implementations. independent external service provider Assessment for impairment involves expectations of sales growth, operating costs and margins based on past experience misstatements were not material and to receive, in confidence, complaints on comparing the book value of an asset with and external sources of information. Long-term growth rates for periods not covered that no adjustments were required. Internal audit its recoverable amount, being the higher by the annual budget were challenged to ensure they were appropriate for the products, The Audit committee is required accounting, risk issues, internal controls, of value in use and fair value less costs industries and countries in which the relevant cash generating units operate. The Internal financial control and to assist the board in fulfilling its auditing issues and related matters to sell. Value in use is determined with committee also reviewed and challenged the key assumptions made in deriving these risk management responsibilities for ensuring the capability for reporting to the Audit committee reference to projected future cash flows projections: discount rates, growth rates, and expected changes in production and sales The committee is required to assist of the internal audit function and the as appropriate. The Audit committee discounted at an appropriate rate. Both volumes, selling prices and direct costs. The committee also considered the adequacy the board to fulfil its responsibilities adequacy of its resourcing and plans. reviewed reports from internal audit the cash flows and the discount rate of the disclosures in respect of the key assumptions and sensitivities. Refer to notes 8 relating to the adequacy and and the actions arising therefrom. involve a significant degree of and 9 to the financial statements for more details of these assumptions. effectiveness of the control environment, To fulfil its duties, the committee Further details on the policy can be estimation uncertainty. reviewed: The committee was satisfied that the discount rate assumptions appropriately reflected controls over financial reporting and found on page 57. current market assessments of the time value of money and the risks associated with the group’s compliance with the UK • internal audit’s reporting lines and The group’s Anti-fraud Policy has the particular assets. The other key assumptions were all considered to be reasonable. Corporate Governance Code. To fulfil access to the committee and all been communicated to all employees these duties, the committee reviewed: The external auditor undertook an independent audit of the estimate of value in use and members of the board; and states that all employees have fair value less costs to sell, including a challenge of management’s underlying cash flow • the external auditors’ management • internal audit’s plans and its a responsibility for fraud prevention and projections, long-term growth assumptions and discount rates. On the basis of their letters and their Audit committee achievement of the planned activity; detection. Any suspicion of fraud should audit work, and their challenge of the key assumptions and associated sensitivities, reports; • the results of key audits and other be reported immediately and will be they considered that the £65m impairment charge to the tangible fixed assets of Allied significant findings, the adequacy Bakeries was appropriately recognised and that no further impairments were required. • internal audit reports on key audit investigated vigorously. The Audit areas and any significant deficiencies of management’s response and committee reviewed all instances of Tax provisions The committee reviews the Company’s tax policy and principles for managing in the financial control environment; the timeliness of their resolution; and fraud perpetrated against the Company The level of current and deferred tax tax risks annually. • reports on the systems of internal • changes in internal audit personnel to and the action taken by management recognised in the financial statements The committee reviewed and challenged the provisions recorded and the contingent financial control and risk management; ensure appropriate resourcing, skills both to pursue the perpetrators and is dependent on subjective judgements liabilities disclosed at the balance sheet date and management confirmed that they • internal audit’s evaluation of the group’s and experience are put in place. to prevent recurrences. as to the outcome of decisions by tax represent their best estimate of the financial exposure faced by the group. authorities in various jurisdictions around readiness for a ‘no deal’ Brexit; the world and the ability of the group to The external auditor explained to the committee the work they had conducted during the year, use tax losses within the time limits including how their audit procedures were focused on those provisions requiring the highest imposed by the various tax authorities. degree of judgement. The committee discussed with both management and the external See also reference to taxation on page 51. auditor the key judgements which had been made. It was satisfied that the judgements were reasonable and that, accordingly, the provision amounts recorded were appropriate.

80 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 81

Corporate governance Remuneration report Annual statement by the Remuneration committee Chair

External audit The Audit committee has formally • the major issues that arose during Auditor independence reviewed the independence of the the course of the audit and their In this section

The Audit committee is responsible external auditor. EY has reported to resolution; The remuneration How the policy, How we expect to for the development, implementation the committee confirming that it • key accounting and audit judgements; policy that applies to approved in 2016, was implement the and monitoring of policies and believes it remained independent • the level of errors identified during executive and non- implemented in 2018/19 remuneration policy procedures on the use of the external throughout the year, within the the audit; and executive directors pages 97–104 in 2019/20 auditor for non-audit services, in meaning of the regulations on this • recommendations made by the pages 91–96 pages 104–106 accordance with professional and matter and in accordance with their external auditors in their management regulatory requirements. These policies professional standards. letters and the adequacy of are kept under review to meet the management’s response. To fulfil its responsibility to ensure the objective of ensuring that the group independence of the external auditor, benefits in a cost-effective manner FRC Audit Quality Review of the The committee Chair’s letter and the annual implementation report on directors’ remuneration the Audit committee reviewed: will be subject to an advisory vote at the 2019 AGM. The remuneration policy will be subject from the cumulative knowledge and Company’s 2018 audit by EY During the year, the Audit Quality to a binding vote at the 2019 AGM. experience of its auditor whilst also • a report from the external auditor Review Team from the FRC undertook ensuring that the auditor maintains the describing arrangements to identify, a review of EY’s audit of the Group’s necessary degree of independence and report and manage any conflicts of 2019 has been a busy year for No change to the overall quantum of LTIP – Context 2018 financial statements. At the time objectivity. The committee’s policy on interest, and policies and procedures the Remuneration committee reward is proposed, as we remain The diverse businesses in our portfolio of writing the AQRT had yet to conclude the use of the external auditor to provide for maintaining independence and as we have been reviewing our mindful of the broader debate about need to deliver different performance this review. Indicative recommendations non-audit services is in accordance with monitoring compliance with relevant remuneration policy. executive pay and inequality in society. outcomes in order to support the applicable laws and takes into account for improvement included impairment overall strategy. In reviewing the requirements; and In this letter I have summarised the Pension contributions the relevant ethical guidance for testing, including how EY evidenced design of our LTIP, we have sought • the extent of non-audit services thinking behind our policy review and We welcome the new expectation for auditors. Any non-audit work to be they had challenged management’s to create a very strong linkage to provided by the external auditor. have set out the key features of the new pension contributions for executives undertaken by the auditor requires assumptions and evidenced their these desired outcomes: policy we are proposing. More details, to be in line with those for the broader authorisation by the Group Finance The total fees paid to EY for the 52 involvement in and oversight of the including the process we followed, employee population, as raised by a • incentivise growth in all our non-Sugar Director and the Audit committee prior weeks ended 14 September 2019 were work of component audit teams. are provided on the following pages. number of investors and now reflected businesses; and to its commencement. The committee £8.6m of which £0.8m related to non- The Audit committee discussed the I then present our key decisions in in the UK Corporate Governance Code. • ensure executives are focussed on also ensures that fees incurred, or to audit work. Further details are provided indicative review findings with EY, implementing our current remuneration We believe this is the right thing to delivering an acceptable return across be incurred, for non-audit services, both in note 2 to the financial statements. reviewed EY’s proposed actions to policy in 2018/19 and decisions so far do and are proposing to align pension the cycle from the Sugar business. individually and in aggregate, do not Auditor effectiveness address these findings and is satisfied regarding 2019/20. Further information contributions or cash allowances exceed any limits in applicable law and The LTIP should not reward executives To assess the effectiveness of that these changes were implemented on these topics can be found in the for future directors with the wider take into account the relevant ethical the external auditors, the committee for the 2019 audit. implementation report. UK workforce. if high sugar prices drive spikes in guidance for auditors. reviewed: profitability. If shareholders benefit from Auditor appointment Executive remuneration policy review Fairness and taking a long-term view increases in the share price driven by The committee is required to approve • the external auditor’s fulfilment of The Audit committee reviews annually In 2016 we introduced a number of are key principles for us when running sugar price volatility, executives will the use of the external auditor to the agreed audit plan and variations the appointment of the auditor, taking important changes to our remuneration the business and when making share in this as a result of having provide: accounting advice and training; from it; into account the auditor’s effectiveness policy, including a new design of the remuneration decisions. Considering the significant shareholdings themselves. corporate responsibility and other • reports highlighting the major issues and independence, and makes a Long Term Incentive Plan (LTIP) contributions for our current executive assurance services; financial due that arose during the course of recommendation to the board measures to reflect the strategy directors, we believe that it is important LTIP – Performance measures diligence in respect of acquisitions Group adjusted earnings per share (EPS) the audit; accordingly. Any decision to open the of holding a portfolio of diverse to honour our contractual commitments and disposals; and will consider other is an important performance measure • feedback from the businesses external audit to tender is taken on the businesses and the very different nature as an organisation, and we are therefore services when it is in the best interests via questionnaires evaluating the recommendation of the Audit committee. of our Sugar business. On balance, not planning to make changes to their for our growth businesses. However, of the Company to do so, provided they performance of each assigned audit we believe that our current policy it is not an appropriate measure for a The Company’s current external auditor, current pension arrangements as part of can be undertaken without jeopardising team, planning, challenge and works well. Nonetheless, we have used cyclical business such as Sugar. We EY, was first appointed at the Annual this year’s remuneration policy review. auditor independence. Tax services interaction with the business; and the opportunity of this policy review to are therefore proposing that the first General Meeting in December 2015, This is consistent with the approach we including tax compliance, tax planning take an even more fundamental look measure of performance in the LTIP is • a report on EY, as a firm, from with effect from 2016, following the took across our UK employee population and related implementation advice at the LTIP structure and its linkage to adjusted EPS growth in the non-Sugar the Audit Quality Review Team conclusion of a competitive tender when closing our defined benefit may not be undertaken by the external how we want to drive the businesses. businesses over the three-year (‘AQRT’) of the Financial Reporting process. The Audit committee is satisfied pension to new members, and when auditor except in very exceptional The other main focus of our review performance period. This adjusted EPS Council (‘FRC’). with the auditor’s effectiveness and defined contribution rates were changed. circumstances where specialist has been the recent changes in the measure is used in our current LTIP. independence and has recommended to knowledge is required. The aggregate The Audit committee holds private corporate governance environment. Shareholding requirements expenditure with the group auditor meetings with the external auditors the board that EY be reappointed as the We have a shareholding culture amongst We believe executives should be accountable for the performance is reviewed by the Audit committee. after each committee meeting to Company’s external auditor for 2019/20. As a result, the substantive changes our senior leadership team, driven by of their investment decisions. The No individually significant non-audit review key issues within their sphere The Company has no current retendering that we are proposing to the policy are: a sense of ownership of the business assignments that would require of interest and responsibility. plans, but keeps such plans under rather than shareholding rules. Our second proposed measure is therefore • a reduction in pension contribution a modifier, based on the three-year disclosure were undertaken review in light of the applicable legal executive directors currently have To fulfil its responsibility for oversight rates for new executive directors average adjusted return on capital in the financial year. and regulatory framework. shareholdings considerably above of the external audit process, the to align with other UK employees; the minimum requirements set in our employed (ROCE) in the non-Sugar The Company has a policy that any Audit committee reviewed: Compliance with the CMA Order • the introduction of a post-employment businesses. This measure is a remuneration policy, as do many other partners, directors or senior managers The Company confirms that, during shareholding requirement; and downward only modifier of up to • the terms, areas of responsibility, senior executives. Reflecting the new hired directly from the external auditor the period under review, it has complied • a new approach to LTIP 20% of the calculated incentive and associated duties and scope of corporate governance expectations, we must be pre-approved by the Group HR with the provisions of The Statutory performance targets. is intended to act as a safety net the audit as set out in the external are proposing to introduce a post-leaving Director, and the Group Finance Director Audit Services for Large Companies by placing a focus on returns; the auditor’s engagement letter; holding requirement that demonstrates or Group Financial Controller, with the Market Investigation (Mandatory performance range is set accordingly. • the overall work plan and fee proposal; our commitment, and that of our Chairman of the Audit committee being Use of Competitive Tender Processes executives, to good corporate consulted as appropriate. and Audit Committee Responsibilities) Order 2014. governance and the long term.

82 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 2019 Associated British Foods plc 83

Governance Corporate governance Remuneration report Annual statement by the Remuneration committee Chair

External audit The Audit committee has formally • the major issues that arose during Auditor independence reviewed the independence of the the course of the audit and their In this section

82 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 83

Remuneration report

The first and second measures Over time we would expect the bottom This year we have recognised an described above for our new LTIP model of the performance range to move up as impairment charge of £65m in respect form 60% of our current LTIP model and we include more years in the averaging of our UK bakeries following the loss are familiar to our executives. Our new of returns and move beyond the impact of a key contract. This has been proposal is to introduce a third measure of regime change. Furthermore, in our charged ‘below the line’ of adjusted which is a further modifier that penalises next policy review in 2022, we expect operating profit and does not impact executives if returns from the Sugar to determine whether the modifier incentive outcomes. business are not acceptable. This could apply both upwards and Consistent with past practice however, measure is based on adjusted return downwards with a more stretching we have used discretion to reduce the on average capital employed in the performance range. number of shares vesting for the small Sugar business, with the book value of We believe that this new approach number of executives, including the goodwill added to the denominator so is well aligned with our strategy and executive directors, involved in the that any investment in Sugar is reflected. operating model and is in investors’ original investment decision to which the The modifier may reduce the calculated interests. It addresses concerns we had impairment relates. The reduction has incentive outcome by up to a further heard from some shareholders, that the been set at 15% of the pre-adjustment 20% of the previously calculated current model allows for part of the vesting amount. amount. The scale of this adjustment LTIP to be earned regardless of the reflects the relative size of Sugar in the Discretion has been applied to reduce Sugar performance. In the new model, group portfolio. the LTIP rather than the STIP as all of the outcome includes the impact investment decisions are long-term, In the 2019-22 LTIP cycle, the adjusted of Sugar. multi-year choices. average Sugar return will be calculated I am delighted that when we over the three years of the LTIP These LTIP awards were allocated at consulted our largest shareholders, performance period. For future cycles a share price of £26.25. Share prices they were very supportive of our we will lengthen the averaging period have since fallen, so the committee has proposals. to include past performance so that considered whether any adjustment eventually the average is calculated over to the vesting outcome should be Remuneration in 2018/19 five or more years. This will reduce the considered. In some previous cycles LTIP 2016-19 impact of peaks and troughs in sugar our share price rose significantly while This is the first vesting under the LTIP price and reflects our position that this the number of shares vesting was low measures that we introduced in 2016. business must deliver an acceptable due to stretching EPS targets. In these return to investors and generate cash For the 60% of the LTIP that is cases, no adjustments were made to over the sugar cycle. Our current focus measured with the impact of Sugar increase vesting and so for consistency is to drive Sugar returns up to acceptable removed, the performance outcome of approach, no adjustment is being levels, following a period of low sugar was 70.89% of maximum. Over the made this time. Our executive directors pricing caused by the European sugar performance period the Retail, Grocery have very significant shareholdings so regime change. We are therefore and Ingredients businesses performed they have experienced the share price proposing that in the initial 2019-22 well against a backdrop of Brexit decline directly through its impact on cycle, no adjustment be made if uncertainty, consequent volatility in their personal wealth. average returns are above 8% but foreign exchange rates and a challenging We believe that the calculated vesting that executives are penalised for lower environment on the high street. returns, with the full reduction applying outcome, following the application of if average returns are at or below 5%. For the 40% of the LTIP measured discretion as detailed above, is fair and This takes into account the fact that our on adjusted group EPS and ROCE, in line with our tradition of reasonable European sugar businesses may still be the performance outcome was 61.68%. and conservative levels of reward. affected by the effects of regime change The performance of the non-Sugar at the start of the performance period. businesses was as described above, A return at the bottom of this range while Sugar performance over the is broadly in line with shareholder three years was impacted by reform expectations for 2019/20. Executives of the European sugar regime and low will need to drive improved performance world sugar prices. if they are to avoid the downwards modifier being applied to vesting in 2022.

84 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

The first and second measures Over time we would expect the bottom This year we have recognised an Short Term Incentive Plan (STIP) Taking all of the above into account, STIP 2019/20 described above for our new LTIP model of the performance range to move up as impairment charge of £65m in respect 2018/19 the financial STIP outcome is 74.13% The personal performance element form 60% of our current LTIP model and we include more years in the averaging of our UK bakeries following the loss STIP targets for 2018/19 were set taking of maximum which the committee of the STIP will be modified to focus are familiar to our executives. Our new of returns and move beyond the impact of a key contract. This has been into account the projected substantial considers to be an appropriate reflection on in-year execution of multi-year proposal is to introduce a third measure of regime change. Furthermore, in our charged ‘below the line’ of adjusted decline in profitability of the Sugar of performance in a challenging year. priorities related to environmental, which is a further modifier that penalises next policy review in 2022, we expect operating profit and does not impact business driven by global and European social and governance (ESG) Salaries executives if returns from the Sugar to determine whether the modifier incentive outcomes. prices. This reduction was offset by measures/business health as well as In December 2018, we did not increase business are not acceptable. This could apply both upwards and setting challenging growth targets for to business performance. This change Consistent with past practice however, the salaries of our executive directors. measure is based on adjusted return downwards with a more stretching Retail and Grocery. was welcomed by our shareholders we have used discretion to reduce the on average capital employed in the performance range. Remuneration in 2019/20 in consultation. number of shares vesting for the small Achievement of the budget was seen Sugar business, with the book value of LTIP 2019-22 We believe that this new approach number of executives, including the as very challenging throughout the year, Salaries goodwill added to the denominator so Subject to our new remuneration policy is well aligned with our strategy and executive directors, involved in the but the final profit outcome was a little This year, with increases for our wider that any investment in Sugar is reflected. being approved, we will make LTIP operating model and is in investors’ original investment decision to which the ahead of budget, driven by the strong UK workforce typically in the range The modifier may reduce the calculated allocations for the 2019-22 performance interests. It addresses concerns we had impairment relates. The reduction has growth in Primark and our international of 2%-3.5%, we have decided not to incentive outcome by up to a further period in December 2019 with heard from some shareholders, that the been set at 15% of the pre-adjustment grocery businesses. Primark increase salaries for the executive 20% of the previously calculated performance subject to the proposed current model allows for part of the vesting amount. performance was a result of better directors. This reflects our conservative amount. The scale of this adjustment new performance measures. LTIP to be earned regardless of the buying and lower mark-downs, leading approach on remuneration. reflects the relative size of Sugar in the Discretion has been applied to reduce Sugar performance. In the new model, to margins above expectations. In our IFRS 16 group portfolio. the LTIP rather than the STIP as The committee has chosen voluntarily to all of the outcome includes the impact international grocery businesses, we IFRS 16 will impact outcomes under investment decisions are long-term, disclose our CEO pay ratio for 2018/19 In the 2019-22 LTIP cycle, the adjusted of Sugar. were delighted with new product the LTIP in 2020 and 2021 as the EPS multi-year choices. on page 103. average Sugar return will be calculated development. Whilst at a much lower and ROCE targets were set without I am delighted that when we over the three years of the LTIP These LTIP awards were allocated at profit than the previous year, AB Sugar the impact of this change to lease Lastly, as you will see, we have taken consulted our largest shareholders, performance period. For future cycles a share price of £26.25. Share prices was marginally ahead of budget with accounting being taken into account. this opportunity to review the format they were very supportive of our we will lengthen the averaging period have since fallen, so the committee has tight cost control and strong measures of this Remuneration report. We hope proposals. Incentive performance ranges will to include past performance so that considered whether any adjustment taken in our Spanish business to reduce that the additional tables and narrative be adjusted to ensure that the LTIP eventually the average is calculated over to the vesting outcome should be beet prices. will add clarity for readers Remuneration in 2018/19 outcomes remain no harder or easier to five or more years. This will reduce the considered. In some previous cycles of the report. LTIP 2016-19 In light of the impairment taken at achieve than they would have been on impact of peaks and troughs in sugar our share price rose significantly while This is the first vesting under the LTIP half year, as described above, the the old accounting basis. The revised Ruth Cairnie price and reflects our position that this the number of shares vesting was low measures that we introduced in 2016. committee has applied discretion to performance ranges will be disclosed Remuneration committee Chair business must deliver an acceptable due to stretching EPS targets. In these adjust the STIP target upwards by the in the 2020 Remuneration report. return to investors and generate cash For the 60% of the LTIP that is cases, no adjustments were made to depreciation benefit in the second half over the sugar cycle. Our current focus measured with the impact of Sugar increase vesting and so for consistency arising from this impairment. is to drive Sugar returns up to acceptable removed, the performance outcome of approach, no adjustment is being levels, following a period of low sugar was 70.89% of maximum. Over the made this time. Our executive directors We also adjusted the STIP and LTIP pricing caused by the European sugar performance period the Retail, Grocery have very significant shareholdings so ranges to take into consideration regime change. We are therefore and Ingredients businesses performed they have experienced the share price the accounting charge for Argentina proposing that in the initial 2019-22 well against a backdrop of Brexit decline directly through its impact on hyperinflation that was included in cycle, no adjustment be made if uncertainty, consequent volatility in their personal wealth. reported numbers but not in the original average returns are above 8% but foreign exchange rates and a challenging performance targets. This adjustment We believe that the calculated vesting that executives are penalised for lower environment on the high street. made the targets no harder or easier to outcome, following the application of returns, with the full reduction applying achieve than was originally intended. if average returns are at or below 5%. For the 40% of the LTIP measured discretion as detailed above, is fair and This takes into account the fact that our on adjusted group EPS and ROCE, in line with our tradition of reasonable European sugar businesses may still be the performance outcome was 61.68%. and conservative levels of reward. affected by the effects of regime change The performance of the non-Sugar at the start of the performance period. businesses was as described above, A return at the bottom of this range while Sugar performance over the is broadly in line with shareholder three years was impacted by reform expectations for 2019/20. Executives of the European sugar regime and low will need to drive improved performance world sugar prices. if they are to avoid the downwards modifier being applied to vesting in 2022.

84 Associated British Foods plc Annual Report and Accounts 2019 AnnualAssociated Report British and Accounts Foods plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 85

Remuneration report

Role of the Remuneration committee The committee is responsible to the board for determining:

• the remuneration policy for the executive directors and the Chairman, considering remuneration trends across the Company; • the specific terms and conditions of employment of each individual executive director; • the overall policy for remuneration of the Chief Executive’s first line reports; • the design and monitoring of the operation of any Company share plans; • stretching incentive targets for executive directors to encourage enhanced performance; • an approach that fairly and responsibly rewards contribution to the Company’s long-term success; and • other provisions of the executive directors’ service agreements and ensuring that contractual terms and payments made on termination are fair to the individual and the Company, and that failure is not rewarded and loss is mitigated. The committee’s remit is set out in detail in its terms of reference, which are reviewed regularly and were last updated in September 2015. They are available on request from the Company Secretary’s office or at www.abf.co.uk/ investorrelations/ corporate_governance. The committee’s terms of reference are being reviewed in late 2019 to ensure that they are compliant with latest corporate governance requirements and once approved will be available at the link above. Members of the Remuneration committee In the financial year and as at the date of this report, members and Chair of the committee have been as follows:

Role on committee Independence Year of appointment Meetings attended Ruth Cairnie1 Chair Senior Independent Director 2014 8 Javier Ferrán1 Member Senior Independent Director 2006 1 Wolfhart Hauser Member Independent Director 2015 8 Richard Reid Member Independent Director 2016 8 Michael McLintock Member Chairman 2017 8 Graham Allan2 Member Independent Director 2018 8 1 Javier Ferrán retired from the Board on 7 December 2018 and Ruth Cairnie was appointed Senior Independent Director from that date. 2 Graham Allan was appointed on 5 September 2018. George Weston (Chief Executive), Des Pullen (Group HR Director) and Julie Withnall (Group Head of Reward) attend the meetings of the committee. No individual is present when their own remuneration is considered. Remuneration principles Our remuneration approach needs to enable us to attract and retain top executive talent to promote the strategic and financial performance of the business. The remuneration principles, shown below, remain unchanged, and have informed our decision- making in relation to the proposed changes to our remuneration policy.

Alignment, accountability Line of sight Clarity and simplicity Fairness and doing the right thing We aim to align We believe that executive Total remuneration should Our board is accountable for remuneration and business pay should be clear and fairly reflect the performance ensuring that the portfolio objectives through simple for participants delivered and efforts made that we operate is the right performance measures to understand. by executives. one to deliver optimal to which individuals have The best way to achieve this returns to shareholders line of sight. is through alignment with and for ascertaining that the business performance. businesses are well run. Our remuneration policy aims to align executive rewards with shareholder value creation.

Policy review When reviewing our policy, the committee considered a wide range of options. At one extreme we considered whether a shift to a remuneration model focussed on fixed pay and long-term share awards without performance conditions could be a helpful simplification. We also looked at whether a price adjustment mechanism, such as those used in other commodity businesses, might be appropriate for the LTIP. The debate was thorough and robust, and we believe that the proposals set out in the committee Chair’s statement and in the following disclosure represent the most appropriate solution for the business.

86 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Role of the Remuneration committee We operate a portfolio approach to our businesses, to which we remain committed. The role of the divisions in the portfolio The committee is responsible to the board for determining: is reviewed regularly. Since we put our current remuneration policy in place in 2016, the following important changes have taken place: • the remuneration policy for the executive directors and the Chairman, considering remuneration trends across the Company; • the specific terms and conditions of employment of each individual executive director; • our non-Sugar businesses have continued to grow; • the overall policy for remuneration of the Chief Executive’s first line reports; • European regime reform has impacted performance in our Sugar division; and • the design and monitoring of the operation of any Company share plans; • the overall shape of the group has changed with Primark becoming a relatively larger part of the whole and Sugar becoming • stretching incentive targets for executive directors to encourage enhanced performance; relatively smaller (less than 20% of the whole). • an approach that fairly and responsibly rewards contribution to the Company’s long-term success; and With the changes in the European sugar regime, we have considered the role of AB Sugar in the portfolio and continue to other provisions of the executive directors’ service agreements and ensuring that contractual terms and payments made • believe that this business will deliver an acceptable return to investors and generate cash over the sugar cycle. on termination are fair to the individual and the Company, and that failure is not rewarded and loss is mitigated. Recent history has reinforced the case for a bespoke approach to our remunerationpackage, reflecting the different nature of The committee’s remit is set out in detail in its terms of reference, which are reviewed regularly and were last updated in the Sugar business. In the early stages of this review we consulted several of our largest shareholders. Their feedback included: September 2015. They are available on request from the Company Secretary’s office or at www.abf.co.uk/ investorrelations/ corporate_governance. • recognition of our conservative approach to incentive quantum and operation of discretion; • support for our choice of metrics (adjusted operating profit, working capital, adjusted EPS and adjusted ROCE); The committee’s terms of reference are being reviewed in late 2019 to ensure that they are compliant with latest corporate • recognition of the challenge of designing an LTIP for a diverse organisation; governance requirements and once approved will be available at the link above. • some challenge from a few of our shareholders on the current LTIP approach, particularly the fact that part excluded Sugar Members of the Remuneration committee performance when, as investors, they can only invest in the business as a whole; and In the financial year and as at the date of this report, members and Chair of the committee have been as follows: • some support for the current approach of measuring LTIP performance partly based on the group as a whole and partly based on the group excluding Sugar. Role on committee Independence Year of appointment Meetings attended Ruth Cairnie1 Chair Senior Independent Director 2014 8 Our workforce remuneration practices vary widely across the organisation. Each divisional chief executive is responsible Javier Ferrán1 Member Senior Independent Director 2006 1 to the Board for running his/her business well and reporting to the Board on how they engage the people in their businesses. Wolfhart Hauser Member Independent Director 2015 8 Within our review we consulted the HR directors from our divisions as representatives of the employees in their areas of the Richard Reid Member Independent Director 2016 8 organisation. We sought to understand views on the alignment of reward and culture in the organisation. Their feedback included: Michael McLintock Member Chairman 2017 8 Graham Allan2 Member Independent Director 2018 8 • confirmation that our remuneration principles are right and resonate across our diverse portfolio of businesses; confirmation of the importance of pay for performance and of flexibility in reward models across the divisions to support 1 Javier Ferrán retired from the Board on 7 December 2018 and Ruth Cairnie was appointed Senior Independent Director from that date. • 2 Graham Allan was appointed on 5 September 2018. different business models and market practices; • confirmation of the importance of shares in long-term incentives to align our business leaders’ interests with those George Weston (Chief Executive), Des Pullen (Group HR Director) and Julie Withnall (Group Head of Reward) attend the of shareholders; meetings of the committee. No individual is present when their own remuneration is considered. • support for our line of sight principle that ensures that targets are meaningful to participants; and Remuneration principles • confirmation that our approach to discretion and flexibility is well aligned with our culture and focuses on ‘doing the right thing’. Our remuneration approach needs to enable us to attract and retain top executive talent to promote the strategic and financial In line with the UK Corporate Governance Code, the following factors, which align well with our principles, were also considered: performance of the business. The remuneration principles, shown below, remain unchanged, and have informed our decision- making in relation to the proposed changes to our remuneration policy. • clarity and simplicity – we believe that our new policy proposals provide transparency for executives and investors about what performance we are looking for across our portfolio;

• risk – we note the reputational and other risks that can result from excessive rewards and believe that our robust target-setting and long history of applying discretion to calculated outcomes reflects this. Over the years, we have applied discretion occasionally to increase incentive outcomes when the situation merits it (as we did in 2017) as well as to decrease payments (as we are doing this year); Alignment, accountability Line of sight Clarity and simplicity Fairness • predictability and proportionality – we believe that the link between individual awards, the delivery of strategy and the long- and doing the right thing We aim to align We believe that executive Total remuneration should term performance of the company is clearly explained in this report and that our approach ensures proportionate pay Our board is accountable for remuneration and business pay should be clear and fairly reflect the performance outcomes that do not reward poor performance; and ensuring that the portfolio objectives through simple for participants delivered and efforts made • alignment to culture – we want our executives to make decisions for the long-term performance and health of the business. that we operate is the right performance measures to understand. by executives. This informs our approach to target setting, operation of discretion and personal performance measures. one to deliver optimal to which individuals have The best way to achieve this returns to shareholders line of sight. is through alignment with and for ascertaining that the business performance. businesses are well run. Our remuneration policy aims to align executive rewards with shareholder value creation.

86 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 87

Remuneration report

Proposed changes to Directors’ Remuneration Policy and to Shareholding Requirements Revised policy Rationale Fixed Pay Pension No changes to pension provision for incumbent The group has a wide variety of pension arrangements executives, whose current arrangements reflect and a strong history of honouring commitments we market practice and pensions practice elsewhere make to individuals at appointment. For example, in the group at the time that their employment our defined benefit (DB) pension scheme remains open contracts were put in place. to future accrual for members that joined the group Pension contributions and/or cash allowance for new before it closed. We believe it is right to honour the executive directors aligned with contribution rates at pensions offered to incumbent executive directors the time of appointment for other UK-based when they signed their employment contracts. employees. This would currently cap company We recognise that going forward it is right for the rate contributions at 10% of salary. of pension contribution for new joiners at the top of the organisation to align with what is offered to our wider UK population. Variable Pay LTIP – Up to Conditional share awards with performance We felt that the LTIP structure and performance 200% of salary measured on: measures could be improved to create an even stronger alignment with our strategy and performance • 200% of salary – Group EPS with the impact of drivers. The reasoning is detailed in the committee Sugar removed Chair’s statement. • Modified 80%-100% – by Group ROCE with the impact of Sugar removed We have not changed the LTIP quantum, the • Modified a further 80%-100% – by Sugar ROCE with requirement for executive directors to hold net vested the book value of goodwill added to the denominator LTIP shares for two years from the vesting date or the scope of discretion available to the Committee. Shareholding Conditional awards do not count. Shares that have Both of our current executives have holdings requirement – vested and are subject to a holding period considerably in excess of our required holding level. This 250% of salary do count. At least 50% of net shares vested under reflects the culture of the group and the commitment (beneficially- STIP and LTIP must be held until the shareholding of our leaders to the long-term stewardship of the owned) requirement is met. business. In light of this, we have not increased the Executive directors will be required to retain, for two level of holding required of our executives. years post leaving the Company, a holding of shares Recognising corporate governance requirements, we at a level equal to the lower of the shareholding have introduced a post-departure holding requirement requirement or their actual shareholding on departure. that is in line with Investment Association (IA) guidance.

Further investor feedback Further to our initial shareholder discussions, we engaged with a broader group of shareholders and with proxy agencies to seek their feedback on the revised remuneration policy outlined above. We have listened closely to their feedback, which is summarised below.

• There was recognition that we had listened to shareholder concerns and thought about how to make the LTIP targets meaningful. The strong consensus was that the new approach is better than the current model which was already an improvement on the pre-2016 approach. • There was appreciation for the proposed pension changes for new joiners. The feedback on our approach for existing executives was mixed. Most investors recognised that unlike many organisations we have a strong track record of honouring our pensions commitments, as detailed in the table above, and that this integrity is part of our culture and is important to us. We appreciated the supportive yet challenging approach from our investors and will keep this matter under consideration. • There was also appreciation for our decision to adopt the IA guidelines in relation to post-employment shareholding. Some of our investors challenged the current level of shareholding requirement for our executives. We have discussed this feedback as a committee. As an organisation we are driven by values and principles. Many of our executives have shareholdings that are in excess of any requirement because they want to invest in the Company, share in its success and demonstrate their commitment to the organisation. We view this as a strength. We feel that the current level of holding requirement remains appropriate and we are confident that our long-serving executives will continue to show their commitment to the Company by holding shares. As we know that this is an area of concern for investors, we will keep this position under review. • In addition to these policy changes, we consulted investors on a proposed change of focus for the personal performance element of STIP to encompass both drivers of long-term business performance and business health. This approach was supported by investors.

88 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Proposed changes to Directors’ Remuneration Policy and to Shareholding Requirements Remuneration structures at a glance Revised policy Rationale The table below outlines the remuneration structure that will apply in 2019/20, subject to approval of the new remuneration policy. Fixed Pay Proposed implementation in 2019/20 (subject Pension No changes to pension provision for incumbent The group has a wide variety of pension arrangements Remuneration element Purpose to approval of new remuneration policy) executives, whose current arrangements reflect and a strong history of honouring commitments we Fixed Pay market practice and pensions practice elsewhere make to individuals at appointment. For example, Base salary Provides core reward for the role. In December 2019, salaries will not be increased. in the group at the time that their employment our defined benefit (DB) pension scheme remains open Enables the Company to attract contracts were put in place. to future accrual for members that joined the group and retain executives of the calibre Pension contributions and/or cash allowance for new before it closed. We believe it is right to honour the required to deliver our strategy. pensions offered to incumbent executive directors executive directors aligned with contribution rates at Pension Provides a competitive George Weston will accrue benefits under the the time of appointment for other UK-based when they signed their employment contracts. retirement benefit. Company’s DB scheme and/or EFRBS. employees. This would currently cap company We recognise that going forward it is right for the rate John Bason will have a pension allowance of 25% contributions at 10% of salary. of pension contribution for new joiners at the top of the of salary. organisation to align with what is offered to our wider UK population. Benefits Provides a competitive and cost- No changes to benefits offered are anticipated in Variable Pay effective benefits package appropriate the year. LTIP – Up to Conditional share awards with performance We felt that the LTIP structure and performance to the role. measured on: measures could be improved to create an even 200% of salary Variable Pay stronger alignment with our strategy and performance • 200% of salary – Group EPS with the impact of STIP – Up to 200% of salary Encourages and rewards attainment Up to 20% of salary in cash based on personal drivers. The reasoning is detailed in the committee Sugar removed of challenging performance targets performance objectives linked to key long-term business Chair’s statement. in cash and shares • Modified 80%-100% – by Group ROCE with the over a one-year period. performance and business health goals. We have not changed the LTIP quantum, the impact of Sugar removed Shares element facilitates operation Up to 180% of salary based on financial performance requirement for executive directors to hold net vested • Modified a further 80%-100% – by Sugar ROCE with of malus and clawback, aligns (currently adjusted operating profit with a working capital LTIP shares for two years from the vesting date or the book value of goodwill added to the denominator the interests of executives multiplier), up to 130% of salary in cash and up to 50% the scope of discretion available to the Committee. and shareholders and promotes of salary in shares. Shareholding Conditional awards do not count. Shares that have Both of our current executives have holdings executive retention. requirement – vested and are subject to a holding period considerably in excess of our required holding level. This LTIP – Up to Rewards long-term business growth, Conditional share awards will be allocated on or after 250% of salary do count. At least 50% of net shares vested under reflects the culture of the group and the commitment facilitates the operation of malus and 9 December using the new performance measures, (beneficially- STIP and LTIP must be held until the shareholding of our leaders to the long-term stewardship of the 200% of salary clawback, aligns the interests of subject to the policy being approved. owned) requirement is met. business. In light of this, we have not increased the executives and shareholders and level of holding required of our executives. • The LTIP targets for 2019–22 are shown on page 105. Executive directors will be required to retain, for two promotes executive retention. years post leaving the Company, a holding of shares Recognising corporate governance requirements, we • A two-year post-vesting holding period applies to net at a level equal to the lower of the shareholding have introduced a post-departure holding requirement of tax shares. requirement or their actual shareholding on departure. that is in line with Investment Association (IA) guidance. Shareholding requirement To demonstrate commitment to A shareholding requirement of 250% of salary, the Company’s success and align as detailed on the previous page. Further investor feedback executives’ and shareholders’ interests.

Further to our initial shareholder discussions, we engaged with a broader group of shareholders and with proxy agencies to seek Fees for non-executive To attract and retain a high-calibre In December 2019, the fees will remain unchanged. their feedback on the revised remuneration policy outlined above. We have listened closely to their feedback, which is directors and the Chairman Chairman and non-executives by summarised below. providing a competitive core reward for the role. • There was recognition that we had listened to shareholder concerns and thought about how to make the LTIP targets meaningful. The strong consensus was that the new approach is better than the current model which was already an improvement on the pre-2016 approach. • There was appreciation for the proposed pension changes for new joiners. The feedback on our approach for existing executives was mixed. Most investors recognised that unlike many organisations we have a strong track record of honouring our pensions commitments, as detailed in the table above, and that this integrity is part of our culture and is important to us. We appreciated the supportive yet challenging approach from our investors and will keep this matter under consideration. • There was also appreciation for our decision to adopt the IA guidelines in relation to post-employment shareholding. Some of our investors challenged the current level of shareholding requirement for our executives. We have discussed this feedback as a committee. As an organisation we are driven by values and principles. Many of our executives have shareholdings that are in excess of any requirement because they want to invest in the Company, share in its success and demonstrate their commitment to the organisation. We view this as a strength. We feel that the current level of holding requirement remains appropriate and we are confident that our long-serving executives will continue to show their commitment to the Company by holding shares. As we know that this is an area of concern for investors, we will keep this position under review. • In addition to these policy changes, we consulted investors on a proposed change of focus for the personal performance element of STIP to encompass both drivers of long-term business performance and business health. This approach was supported by investors.

88 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 89

Remuneration report

Illustration of incentive model The chart below shows the approach that we are planning to apply to incentives in 2019/20, subject to shareholder approval of our new remuneration policy.

Incentives performance and release timing Performance % of measures base 2019/20 2020/21 2021/22 2022/23 2023/24

Personal Objectives 20% Performance Cash payment (subject to malus and clawback) STIP

Financial Adjusted operating 130% Performance Cash payment (subject to malus and clawback) STIP proﬁt x working capital modiﬁer 50% Performance Deferral Paid in shares. Release of shares Absolute TSR alignment on shares – granted at start (subject to malus and clawback) of performance period

LTIP Adjusted EPS excluding 200% Performance Release of Holding Sugar x moderator based Vests at end of year three shares (subject on three-year average to malus and Absolute TSR alignment on shares – granted at start of performance period ROCE excluding Sugar x clawback) moderator based on three-year average Sugar returns

Shareholding 250% Absolute TSR alignment requirement

90 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Illustration of incentive model The chart below shows the approach that we are planning to apply to incentives in 2019/20, subject to shareholder approval Remuneration policy for executive directors of our new remuneration policy. This report sets out our remuneration policy which will apply, subject to approval, from the close of the AGM on 6 December 2019. For unvested share awards only, the provisions of the remuneration policy presented in the 2016 Remuneration report will continue to apply until such time as all long-term incentive awards granted under that policy have vested or lapsed.

Operation and link to business strategy Maximum opportunity Base salary Base salaries are normally reviewed on an annual basis. Factors Increases will be aligned with the (100% cash) taken into account include market pay movements, the level of range of increases available for other increases awarded to UK employees across the group and the UK employees. impact of any increase on the total remuneration package. If there is a significant change in role scope, remuneration will be adjusted to reflect this. Benefits (excluding Benefits are restricted to typical UK market levels for executive The cost of benefits is capped relocation) directors and include, but are not limited to, death in service at 10% of salary. payment, permanent health insurance, company car plus private fuel, family healthcare and, where relevant, fees to maintain professional memberships.

Pension Defined benefit (DB) pension arrangements – closed to For the Chief Executive, a retirement new members benefit target of circa two-thirds of The current executive directors were members of the Company’s final pensionable pay is payable at DB pension scheme. The scheme is designed to provide retirement normal retirement age. benefits of around two-thirds of final pensionable pay at age 65. For the Finance Director the Both executive directors opted out of the scheme on 5 April 2006 maximum company contribution but retain their accrued benefits. Since then the Chief Executive (or cash equivalent) is 25% of salary. has earned benefits in an EFRBS. The Finance Director accrued benefits in an EFRBS until April 2019. The EFRBS is designed Future executives may receive broadly to mirror the DB scheme. Company contributions (or cash equivalent) up to a maximum rate Defined contribution pension arrangements/cash alternative aligned to that for other employees, Since April 2019 the Finance Director has received a cash pension currently 10% of base salary. allowance of 25% of salary, in lieu of a DC contribution. Future executive directors, who are not already entitled to DB pension arrangements at the time of appointment, will benefit from a defined contribution arrangement. Where a UK-based pension arrangement is not possible, or is not tax-efficient, a cash supplement equivalent to the normal pension contribution may be paid in lieu of pension contributions.

Short term Performance measures and target-setting STIP cash of 150% of base salary incentive Group financial performance targets can apply to up to the full and STIP shares of 50% of base plan (STIP) amount of the STIP and are assessed against prime financial and salary. strategic measures used across the group to drive performance. In exceptional circumstances, such Personal performance measures can apply to up to 20% of the as the appointment of a new Chief STIP and are based on personal targets aligned to key business Executive, this could be increased health and business performance goals. to 300% of base salary to correct any shortfall against market. The on-target performance level is set at the start of each financial Any increase would consider year considering budgeted performance and any early re-forecasts. adjustments in other elements A range is set around the target to incentivise delivery of stretching of the package to ensure that the performance. total was not excessive. Annual allocations of conditional shares vest based on performance At maximum, 100% of the allocated in year one and a further service period of two years. Shares vest shares vest; at target 50% vest; three years after the start of the relevant STIP performance period. at threshold 10% vest; and below A cash or shares dividend equivalent payment is made, pro rata to threshold awards lapse. the number of shares vesting, at the release date.

90 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 91

Remuneration report

Operation and link to business strategy Maximum opportunity Short term Retrospective disclosure of targets incentive Achievement against targets will be disclosed at the end of the plan (STIP) financial year in that year’s Remuneration report and further detail, continued including the performance range that applied to financial targets, will be disclosed one year later. Discretion, clawback and malus Please refer to the notes that follow this table. Long term Growth in adjusted EPS with the adjusted operating profit, tax and 200% of base salary at allocation. incentive plan (LTIP) interest of Sugar removed. In exceptional circumstances, The calculated outcome may then be moderated downwards to such as the appointment of a new reflect average ROCE performance over three years with the profit Chief Executive, this could be and average capital employed of Sugar removed. increased to 300% of base salary to The calculated outcome may then be further moderated downwards correct any shortfall against market. to reflect average Sugar ROCE performance with the book value Any increase would consider of goodwill added to the denominator over three or more years. adjustments in other elements of the package to ensure that the These measures reflect our strategy and feedback from investors. total was not excessive. They are well understood both by participants and shareholders. At maximum, 100% of the allocated Targets are set for each allocation, taking into account the shape shares vest; at target 50% vest; of the portfolio, market expectations and internal forecasts for the at threshold 10% vest; and below next few years, and the scale of investments made. threshold awards lapse. Vesting period Annual allocations of conditional shares will be free of restrictions after a five-year period, comprising a three-year performance period and a two-year holding period for the net of tax award. Discretion, clawback and malus Please refer to the notes that follow this table. Dividend equivalents A cash or shares dividend equivalent payment will be made, pro rata to the number of shares vesting, at the release date.

Shareholding Executives are required to build a holding of beneficially owned During employment requirement shares in the company. 250% of salary to be held in the Conditional awards under our incentive plans do not count towards form of shares. this limit. Post-employment Shares that have vested and are subject to a holding period do count. Executive directors will be required to retain, for two years post leaving At least 50% of net shares vested under STIP and LTIP must be the Company, a holding of shares held until the shareholding requirement is met. at a level equal to the lower of the shareholding requirement or their actual shareholding on departure. Non-executive The Chairman and executive directors review non-executive directors’ fees in light of fees payable in directors’ fees comparable companies and by reference to the time commitment, responsibility and technical skills required to make a valuable contribution to an effective board. Fees are paid in cash on a quarterly basis except for the Chairman whose fee is paid monthly and are not varied for the number of days worked. Non-executive directors receive no other benefits and take no part in any discussion concerning their own fees. We pay additional fees to reflect extra duties and time commitments, including to the Senior Independent Director, committee Chairs and individuals taking on other projects and responsibilities at the request of the Company. As the Chair of the Nomination committee is currently the Company Chairman, no fee is paid for this role at present. Chairman The Remuneration committee reviews the Chairman’s fees. No other benefits are paid to the Chairman. Shareholding We encourage our non-executive directors to build up a shareholding of at least 100% of their annual fee. Expenses We reimburse reasonable expenses incurred in travelling on behalf of the business. As HMRC regards travel to the head office as a benefit in kind, we pay any tax due on such expenses on a grossed-up basis.

92 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Operation and link to business strategy Maximum opportunity Notes to the remuneration policy table Short term Retrospective disclosure of targets Malus and clawback incentive Achievement against targets will be disclosed at the end of the The committee may, at any time within two years of an LTIP vesting or STIP being paid, determine that clawback shall apply if plan (STIP) financial year in that year’s Remuneration report and further detail, the committee determines that performance outcomes were misstated or an erroneous calculation was made in assessing the continued including the performance range that applied to financial targets, extent to which performance targets were met. LTIP and STIP payments can be clawed back if the participant is found at any will be disclosed one year later. time prior to vesting/payment, including prior to grant, to have committed an act or omission which, in the opinion of the committee, would have justified summary dismissal. Discretion, clawback and malus Please refer to the notes that follow this table. As a condition of participating in the STIP and LTIP, all participants are required to agree that the committee may cause any STIP Long term Growth in adjusted EPS with the adjusted operating profit, tax and 200% of base salary at allocation. or LTIP award in which they participate to lapse (in whole or in part); and/or operate clawback under any LTIP or STIP in which incentive plan (LTIP) interest of Sugar removed. they participate; and/or reduce any amounts otherwise payable to them; and/or require the participant immediately to transfer In exceptional circumstances, shares or cash back to the Company. The calculated outcome may then be moderated downwards to such as the appointment of a new reflect average ROCE performance over three years with the profit Chief Executive, this could be Discretion and average capital employed of Sugar removed. increased to 300% of base salary to The committee will apply discretion, where necessary and by exception, to ensure that there are no unintended consequences The calculated outcome may then be further moderated downwards correct any shortfall against market. from the operation of the remuneration policy. The committee applies a robust set of principles to ensure that incentive outcomes to reflect average Sugar ROCE performance with the book value Any increase would consider are consistent with business performance and aligned with shareholder interests. Any material exercises of discretion by the of goodwill added to the denominator over three or more years. adjustments in other elements committee in relation to the STIP and LTIP will be in line with scheme rules, or other applicable contractual documentation, and of the package to ensure that the will be fully disclosed and explained in the relevant year’s annual implementation report. These measures reflect our strategy and feedback from investors. total was not excessive. They are well understood both by participants and shareholders. At maximum, 100% of the allocated Approach to recruitment remuneration Targets are set for each allocation, taking into account the shape shares vest; at target 50% vest; Area Policy and operation of the portfolio, market expectations and internal forecasts for the at threshold 10% vest; and below next few years, and the scale of investments made. Overall As we may need to recruit future executive directors from outside the UK or from companies with more threshold awards lapse. aggressive incentive policies than our own, the arrangements below are intended to provide the necessary Vesting period flexibility to recruit the right individuals. Annual allocations of conditional shares will be free of restrictions For internal appointments, awards in respect of the prior role may be allowed to vest according to the terms after a five-year period, comprising a three-year performance period of the scheme, adjusted as relevant to take account of the new appointment. In addition, ongoing prior and a two-year holding period for the net of tax award. remuneration obligations may continue. Discretion, clawback and malus The rationale for the package offered will be explained in the subsequent annual implementation report. Please refer to the notes that follow this table. We apply the same policy for new joiners as for existing executive directors. Dividend equivalents A cash or shares dividend equivalent payment will be made, Base salary Base salary would be set at an appropriate level to recruit the best candidate, based on their skills, experience pro rata to the number of shares vesting, at the release date. and current remuneration, taking into account market data and internal salary relativities.

Shareholding Executives are required to build a holding of beneficially owned During employment Relocation If a new executive director needs to relocate, the Company may pay: requirement shares in the company. 250% of salary to be held in the • actual relocation costs and other reasonable expenses relating to moving house, including temporary Conditional awards under our incentive plans do not count towards form of shares. accommodation if required; this limit. Post-employment • disturbance allowance of up to 5% of salary, some of which may be tax-free for qualifying expenditure; Shares that have vested and are subject to a holding period do count. Executive directors will be required • school fees for dependent children where there are cultural or language considerations; to retain, for two years post leaving • medical costs for the overseas family, where relevant; At least 50% of net shares vested under STIP and LTIP must be the Company, a holding of shares • one business class return fare per annum each for the executive, his/her partner and dependent children held until the shareholding requirement is met. at a level equal to the lower of the in order to maintain family or other links where an executive is recruited from outside the UK; shareholding requirement or their actual shareholding on departure. • reasonable fees and taxes for buying and/or selling a family home and/or appropriate rental costs; • reasonable fees for consultancy advice related to relocation, including, but not limited to, school/home Non-executive The Chairman and executive directors review non-executive directors’ fees in light of fees payable in finding advice and support with tax returns as required; directors’ fees comparable companies and by reference to the time commitment, responsibility and technical skills • tax equalisation costs for an agreed period; and required to make a valuable contribution to an effective board. Fees are paid in cash on a quarterly basis • any tax due, grossed up, on any relocation-related payments listed above. except for the Chairman whose fee is paid monthly and are not varied for the number of days worked. Non-executive directors receive no other benefits and take no part in any discussion concerning their Buy-out awards In addition to normal incentive awards, buy-out awards may be made to reflect value forfeited through an own fees. individual leaving their current employer. If required, the committee would aim to reflect the nature, timing and value of awards foregone in any replacement award, taking into account the performance conditions We pay additional fees to reflect extra duties and time commitments, including to the Senior Independent achieved/likely to be achieved and the proportion remaining of the performance period. Awards may be made Director, committee Chairs and individuals taking on other projects and responsibilities at the request in cash or shares. of the Company. As the Chair of the Nomination committee is currently the Company Chairman, no fee is paid for this role at present. In establishing the appropriate value of any buy-out, the committee would also have regard to the value of the other elements of the new remuneration package. The committee would aim to minimise the cost to the Chairman Company, however, buy-out awards are not subject to a formal maximum. Any awards would be broadly no The Remuneration committee reviews the Chairman’s fees. No other benefits are paid to the Chairman. more valuable than those being replaced. Shareholding Where possible, we would specify that at least 50% of any vested buy-out awards should be retained until the We encourage our non-executive directors to build up a shareholding of at least 100% of their annual fee. shareholding requirement is met. Expenses Other elements Benefits, pension, STIP, LTIP and shareholding requirements will operate in line with the remuneration policy. We reimburse reasonable expenses incurred in travelling on behalf of the business. As HMRC regards travel to the head office as a benefit in kind, we pay any tax due on such expenses on Non-executives Fees would be in line with the remuneration policy. We would not pay to relocate a non-executive director. a grossed-up basis.

92 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 93

Remuneration report

How pay and conditions of employees were considered when setting the directors’ remuneration policy The group is geographically dispersed and therefore subject to very different pay markets. As a result, it is difficult to make sensible comparisons with all employees across the group. However, the Remuneration committee is mindful of our reward practices across the group when setting and implementing the remuneration policy for the executive directors. We have engaged with our divisional HR Directors when reviewing executive remuneration policy but have not consulted employees. The structure and principles of incentives further down the organisation are consistent with the approach taken for the Chief Executive and Finance Director. The committee is provided with data on the remuneration structure for two tiers of senior management below the executive directors and uses this information to work with the Company to ensure consistency of approach. In addition, the committee approves all share-based LTIP awards across the group. The executive directors have a greater proportion of their total reward package at risk than other employees. This means that ni years of very good performance, the Chief Executive’s package increases proportionately more than that of other employees and conversely in years of lower performance it may be proportionately less. We believe that this is the right model for our business and drives an appropriate performance focus. Salary increases for executive directors are limited to the range of increases available to UK-based employees except in a change of role. Statement of consideration of shareholders’ views The committee Chair is available to discuss any remuneration matters with shareholders, to help shape our policy and practice. Each year we invite our larger institutional shareholders to share their views on the group’s remuneration, strategy and governance. The feedback received, and our response, is detailed in the committee Chair’s statement and the policy review section at the start of this report. Executive directors serving as non-executive directors To encourage self-development and external insight, the committee has determined that, with the consent of both the Chairman and the Chief Executive, executive directors may serve as non-executive directors of other companies in an individual capacity, retaining any fees earned. Service contracts and policy on payment for loss of office Provision Policy and operation Notice period 12 months’ notice by either the director or the Company. Contracts are available for inspection at the Company’s offices. Contracts and service agreements are not reissued when base salaries or fees are changed. Non-compete During employment and for 12 months thereafter.

Executive directors – Resignation contractual No payments on departure, even if, by mutual agreement, the notice period is cut short. termination payments Departure not in the case of resignation Service contracts allow for the Company to terminate employment by paying the director in lieu of some or all of their notice period. The Company may determine that such a payment is made in monthly instalments or as a lump sum. A payment in lieu of notice will comprise the salary, benefits and pension provision that the director would otherwise have received during the relevant period. The Company is committed to the principle of mitigation and would reduce monthly instalments to take account of amounts received from alternative employment. By exception, the Company may permit an executive director to work for us as a contractor or employee after the end of their notice period for a limited period to ensure an effective hand-over and/or to allow time for a successor to be appointed. Settlement agreement The committee may agree reasonable payments in settlement of legal claims. This may include an entitlement to compensation in respect of their statutory rights under employment protection legislation in the UK or in other jurisdictions. The committee may also include in such payments reasonable reimbursement of professional fees in connection with such agreements. The committee may make payments in respect of outplacement and/or provide other ancillary or non-material benefits linked with departure (including for a defined period after departure) not exceeding £10,000 in aggregate for those leaving the business under an agreement or for other reasons excluding resignation.

Relocation Good leaver* support If an executive was relocated to the UK at the start of his/her employment, his/her repatriation may be paid. Leaver due to resignation/misconduct/poor performance No payment is made.

94 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

How pay and conditions of employees were considered when setting the directors’ remuneration policy Provision Policy and operation The group is geographically dispersed and therefore subject to very different pay markets. As a result, it is difficult to make STIP cash Good leaver* sensible comparisons with all employees across the group. However, the Remuneration committee is mindful of our reward The committee will consider making a payment pro rata for time and performance, for the financial year practices across the group when setting and implementing the remuneration policy for the executive directors. We have in which the termination/death took place. Any agreed payment will be made in the December following engaged with our divisional HR Directors when reviewing executive remuneration policy but have not consulted employees. the year end. In the case of death, payment may be accelerated. This is consistent with the approach The structure and principles of incentives further down the organisation are consistent with the approach taken for the Chief for other STIP participants. Executive and Finance Director. The committee is provided with data on the remuneration structure for two tiers of senior Resignation management below the executive directors and uses this information to work with the Company to ensure consistency of If an executive director ceases to be employed before, or is under notice when, full year results are approach. In addition, the committee approves all share-based LTIP awards across the group. published, no STIP is paid. The executive directors have a greater proportion of their total reward package at risk than other employees. This means that ni Leaver due to misconduct/poor performance years of very good performance, the Chief Executive’s package increases proportionately more than that of other employees and No payment is made. conversely in years of lower performance it may be proportionately less. We believe that this is the right model for our business LTIP and STIP Good leaver* and drives an appropriate performance focus. Salary increases for executive directors are limited to the range of increases shares Where the performance condition on STIP shares has already been achieved and the award is subject to available to UK-based employees except in a change of role. a service condition, it will vest at the usual vesting date. For other allocations, the committee will decide the extent to which they vest, having regard to the extent to which any performance condition is satisfied Statement of consideration of shareholders’ views and, unless the committee determines otherwise, pro-rating to reflect the period from the start of the The committee Chair is available to discuss any remuneration matters with shareholders, to help shape our policy and practice. performance period until the date of cessation. Such awards will vest on the normal vesting date or Each year we invite our larger institutional shareholders to share their views on the group’s remuneration, strategy and at such other date as the committee determines. In the case of death, vesting may be accelerated. governance. The feedback received, and our response, is detailed in the committee Chair’s statement and the policy review Awards or portions of awards that do not vest will lapse. section at the start of this report. Leaver due to resignation/misconduct/poor performance Executive directors serving as non-executive directors All conditional awards lapse. To encourage self-development and external insight, the committee has determined that, with the consent of both the Chairman Change of control of the Company and the Chief Executive, executive directors may serve as non-executive directors of other companies in an individual capacity, In the event of a change of control, all unvested awards under the LTIP would vest, subject to the retaining any fees earned. committee considering the extent that any performance conditions attached to the relevant awards have Service contracts and policy on payment for loss of office been achieved and, unless the committee determines otherwise, the proportion of the performance period worked by the director prior to the change of control. For STIP shares, all will vest on the event Provision Policy and operation of a change of control. Notice period 12 months’ notice by either the director or the Company. Contracts are available for inspection at the Non-executive Appointment is for three years unless terminated by either party on six months’ notice. Continuation Company’s offices. Contracts and service agreements are not reissued when base salaries or fees directors – contractual of appointment depends on performance and re-election. Non-executive directors typically serve two are changed. termination payments or three three-year terms. Non-compete During employment and for 12 months thereafter. Our Articles of Association require directors to retire from office if they have not retired at either of the preceding two annual general meetings. At this year’s annual general meeting, all directors are standing Executive directors – Resignation for election or re-election in compliance with the UK Corporate Governance Code. Where an individual contractual No payments on departure, even if, by mutual agreement, the notice period is cut short. termination payments does not stand for re-election, they are not paid in lieu of notice. Departure not in the case of resignation Service contracts allow for the Company to terminate employment by paying the director in lieu of * Good leavers are those leaving because of ill health/injury/disability/death, redundancy, retirement or because their employing company is being transferred outside some or all of their notice period. The Company may determine that such a payment is made in monthly the group or for any other reason determined by the committee. instalments or as a lump sum. A payment in lieu of notice will comprise the salary, benefits and pension provision that the director would otherwise have received during the relevant period. The Company is committed to the principle of mitigation and would reduce monthly instalments to take account of amounts received from alternative employment. By exception, the Company may permit an executive director to work for us as a contractor or employee after the end of their notice period for a limited period to ensure an effective hand-over and/or to allow time for a successor to be appointed. Settlement agreement The committee may agree reasonable payments in settlement of legal claims. This may include an entitlement to compensation in respect of their statutory rights under employment protection legislation in the UK or in other jurisdictions. The committee may also include in such payments reasonable reimbursement of professional fees in connection with such agreements. The committee may make payments in respect of outplacement and/or provide other ancillary or non-material benefits linked with departure (including for a defined period after departure) not exceeding £10,000 in aggregate for those leaving the business under an agreement or for other reasons excluding resignation.

94 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 95

Remuneration report

Executive directors’ reward potential

eore eston 000 ohn Bason 000

n reo nare a n reo nare a

e eeen nna varae oner varae e eeen nna varae oner varae eeen are eeen eeen are eeen nna varae oner varae are rce nna varae oner varae are rce eeen ca eeen ncreen eeen ca eeen ncreen

Notes 2019/20 Policy 1 Fixed elements for George Weston comprise salary (net of pension-related salary sacrifice) of £1,065,205 benefits of £16,250 and pension of £308,756 and applies to minimum, threshold, on-target and maximum performance. 2 Fixed elements for John Bason comprise salary of £720,000 benefits of £20,467 and a cash allowance in lieu of DC pension contributions of £180,000 and applies to minimum, threshold, on-target and maximum performance. 3 Cash STIP is calculated on base salary at the end of the financial year and both the deferred awards and LTIP share values are calculated on base salary at the date of allocation and exclude share price movement and dividend equivalents. 4 Minimum: No cash STIP, deferred awards or LTIP vesting for not achieving threshold performance. 5 Threshold: Cash STIP of 12% of base salary (12% of base salary for threshold financial performance and 0% for not achieving threshold personal performance). Deferred awards vesting at 10% of maximum (i.e. 5% of grant date base salary). LTIP vesting at 6.4% of maximum (i.e. 20% x 80%x 80% of grant date base salary) following achievement of the threshold EPS performance target modified downwards twice for returns at the bottom of the performance range. 6 On-target: Cash STIP of 78.33% of base salary (65% for target financial performance and 13.33% for target personal performance). Deferred awards vesting at 50% of maximum (i.e. 25% of grant date base salary). LTIP vesting at 50% of maximum (i.e. 100% of grant date base salary). 7 Maximum: Cash STIP of 150% of base salary (130% for maximum financial performance and 20% for achieving maximum personal performance). Deferred awards vesting at 100% of maximum (i.e. 50% of grant date base salary). LTIP vesting at 100% of maximum (i.e. 200% of grant date basesalary).

96 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Executive directors’ reward potential Annual implementation report on directors’ remuneration – single total figure (audited)

• Sets out the elements of remuneration paid to directors in respect of the financial year 2018/19. • Sets out performance outcomes for the financial year 2018/19 • Sets out the performance range that applied for the STIP in 2017/18 • Details how we expect to implement the remuneration policy in 2019/20.

This report is subject to an advisory vote at the 2019 AGM.

Single total figure of remuneration for executive directors

George Weston John Bason 2019 2018 2019 2018 £’000s £’000s £’000s £’000s Fixed Pay Base salary1 1,063 1,060 703 692 2 Benefits 16 16 91 23 Pension3,4 309 247 211 337 Total Fixed Pay 1,388 1,323 1,005 1,052 5 Variable Pay STIP (inc Deferred Shares) 1,599 1,039 1,062 698 LTIP6,7 1,159 1,481 763 976

Total Variable Pay 2,758 2,520 1,825 1,674 Total Single Figure of Remuneration 4,146 3,843 2,830 2,726

1 For executive directors, the salary in the year is not the same as a weighted average of the headline salaries, since salary ctuallya paid is reduced for pension related salary sacrifices. The benefit of these salary sacrifices is capturedin the increase in pension entitlements for which a remuneration value is shown in the pensions row. 2 The value of George Weston’s benefits comprised £14,161 taken in cash and £2,090 taxed as benefits-in-kind and the value of John Bason’s benefits comprised Notes 2019/20 Policy a pension cash allowance of £70,409, £14,161 taken in cash and £6,306 taxed as benefits-in-kind. 3 1 Fixed elements for George Weston comprise salary (net of pension-related salary sacrifice) of £1,065,205 benefits of £16,250 and pension of £308,756 and applies While the nature of George Weston’s pension benefits has not changed during the year, the pensions number for the purposes ofthis disclosure has increased. to minimum, threshold, on-target and maximum performance. This year’s amount is higher than last year due to a reduction in the Consumer Price Index to 2.4% at the start of this year omfr 3% at the start of last year. 4 2 Fixed elements for John Bason comprise salary of £720,000 benefits of £20,467 and a cash allowance in lieu of DC pension contributions of £180,000 and applies John Bason’s pension benefits continued on the same basis as last year until 24 April 2019. Further accrual under the EFRBS ceased at that date. Since that date to minimum, threshold, on-target and maximum performance. he has been paid a pension cash allowance of 25% of salary, which is reported in this table as a taxable benefit. 5 3 Cash STIP is calculated on base salary at the end of the financial year and both the deferred awards and LTIP share values are calculated on base salary at the date The STIP values shown include a cash amount, which is paid in December in respect of the preceding financial year, and the value of deferred share awards that of allocation and exclude share price movement and dividend equivalents. are based on performance over the relevant financial year. The shares value is calculated based on the average mid-market closing price over the last quarter of the 4 Minimum: No cash STIP, deferred awards or LTIP vesting for not achieving threshold performance. financial year. For 2017/18 the relevant share price was 2465.31p and for 2018/19 it was 2359.23p. The shares in these awards rea subject to a two-year deferral 5 Threshold: Cash STIP of 12% of base salary (12% of base salary for threshold financial performance and 0% for not achieving threshold personal performance). period and remain conditional. For George Weston the amount shown for 2019 comprises a cash element of £1,195,403 and a deferred award value of £378,656 Deferred awards vesting at 10% of maximum (i.e. 5% of grant date base salary). LTIP vesting at 6.4% of maximum (i.e. 20% x 80%x 80% of grant date base salary) plus £1.245 per share dividend equivalent payment of £25,422. For John Bason this comprises a cash element of £794,664 and a deferred award value of £250,126 following achievement of the threshold EPS performance target modified downwards twice for returns at the bottom of the performance range. plus £1.245 per share dividend equivalent payment of £16,743. 6 6 On-target: Cash STIP of 78.33% of base salary (65% for target financial performance and 13.33% for target personal performance). Deferred awards vesting at 50% 67.21% of the shares under the LTIP for 2016–19 would normally vest in November 2019. After a reduction of 15% of the calculated vesting amount the actual of maximum (i.e. 25% of grant date base salary). LTIP vesting at 50% of maximum (i.e. 100% of grant date base salary). vesting is 57.13% of the award. George Weston will receive 46,661 shares and John Bason will receive 30,730 shares. As required by UK regulations, the vesting 7 Maximum: Cash STIP of 150% of base salary (130% for maximum financial performance and 20% for achieving maximum personal performance). Deferred awards value for 2016–19 has been estimated using the mid-market closing price over the last quarter of 2018/19 of 2359.23p. Vesting will be on 25 November 2019 and a vesting at 100% of maximum (i.e. 50% of grant date base salary). LTIP vesting at 100% of maximum (i.e. 200% of grant date basesalary). figure recalculated for the share price on that date will be presented in the 2020 report. This value also includes the value fo a cash payment in lieu of dividends paid on the vested shares over the performance period of £1.245 per share. The dividend equivalent values included in the numbers are £58,093 for George Weston and £38,259 for John Bason. 7 100% of the shares under the LTIP for 2015–18 vested in November 2018 at a share price of 2494.509p. George Weston received 59,388 shares and John Bason received 39,110 shares. As required by UK regulations, the value disclosed for this award in 2018 was estimated using the average mid-market closing price over the last quarter of the 2017/18 financial year of 2465.31p. This figure has now been recalculated for the actual share price on the vesting date. This section, which provides more information on executive directors’ salaries and benefits in the last year, forms part of the annual implementation report on directors’ remuneration, which is subject to an advisory vote at the 2019 AGM. Single total figure – base salary Executive directors’ salaries were reviewed on 1 December 2018 and the Remuneration committee determined that they should remain unchanged from salaries in the previous year.

Increase in Dec 2017 Dec 2018 Dec 2018 George Weston £1,090,000 0% £1,090,000 John Bason £720,000 0% £720,000

Single total figure – taxable benefits The taxable values of a fully-expensed company car, family private medical insurance, permanent health insurance, life assurance and an annual medical check-up are included in the table of directors’ remuneration. Pensions Both directors opted out of the Associated British Foods Pension Scheme, a defined benefit scheme, on 5 April 2006. Since then George Weston has earned benefits in an Employer Funded Retirement Benefit Scheme (EFRBS). From 5 April 2006 until 24 April 2019, John Bason also earned benefits in an EFRBS. On 24 April 2019 his EFRBS entitlement ceased and, as disclosed in our 2018 annual report, his previous contract of employment with the Company ended. As such, on 24 April 2019, John Bason entered into a new contract of employment with the Company and, consistent with other new joiners at executive level under the 2016 remuneration policy, was offered participation in our defined contribution scheme or a cash alternative payment. We consulted our largest shareholders in late 2018 and they were supportive of this approach, which was significantly more cost effective for the Company than extending the previous contract and EFRBS membership.

96 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 97

Remuneration report

George Weston In this financial year George Weston had an overall benefit promise of 1/45th of final pensionable pay for each year of pensionable service up to 5 April 2016 and 1/50th of final pensionable pay for each year of pensionable service thereafter, subject to a maximum of 2/3rds of final pensionable pay. He opted out of the Associated British Foods Pension Scheme on 5 April 2006 and has a deferred benefit in the Scheme; the balance of the promise is provided under an EFRBS. His pension benefits are payable from age 65. There is no additional benefit entitlement for members if they take early retirement. His accrued pension at 14 September 2019 was £644,247. John Bason In the period to 24 April 2019, John Bason had an overall benefit promise at age 62 of 2/3rds offinal pensionable pay, less an allowance for retained benefits from his previous employment. He opted out of the Associated British Foods Pension Scheme on 5 April 2006 and has a deferred benefit in the Scheme; the balance of the promise was provided under an EFRBS. His pension benefits were payable from age 62. There is no additional benefit entitlement for members if they take early retirement. His accrued pension at 24 April 2019 was £413,300. From 24 April 2019 onwards John Bason has been in receipt of a cash allowance in lieu of pension contributions of 25% of salary.

Short Term Incentive Plan – 2018/19 – Cash and Shares The committee felt that the budget for 2018/19 was a very demanding one, reflecting, in particular, the expected further weakness in world and European sugar prices and the fact that the resulting decline in Sugar profitability was to be offset by significant growth in the other businesses. As expected, Sugar profit was well below the previous year but slightly ahead of the target set due to strong mitigation actions through an ongoing focus on cost reduction. In the event, financial performance in the year was ahead of target driven by strong performance in Primark and the international grocery businesses. Primark delivered margins above expectations as a result of better buying and lower mark-downs. There was also good growth in Spain, France and Italy. We have continued to learn from our experience in retail in the US and there has been a focus on strengthening our performance in Germany by optimising our cost base, listening to customer feedback and better communicating our ethics to our customers there. Our grocery businesses delivered a profit improvement of 10% at constant currency and launched some exciting new products in the year. However, we lost our largest UK own label bread contract with a major retailer. As a result, and as noted in the committee Chair’s statement, we recognised a £65m impairment charge at the half year in respect of the UK bakeries. Consequently, the depreciation that would otherwise have been charged on these assets in the second half of the year did not arise, which benefited adjusted operating profit and was not reflected in the budget for the year. We have therefore adjusted the STIP target by the same amount as this depreciation upside so that executives do not enjoy a windfall benefit from this. The table below shows outcomes against the specific measures in the year. We will disclose the target ranges that applied to the 2018/19 STIP in November 2020.

Measures Achievements against performance measures

Threshold 15% salary Target 65% salary Maximum 108.3% salary

8031 1083

A – Adjusted operating proﬁt 15.0 108.3 Threshold x 0.8 Target x 1 Maximum x 1.2

B – Working capital as % of revenue 0.8 120.0 Threshold 12% salary Target 65% salary Maximum 130% salary

9637 130

A x B – Total ﬁnancial 12 130 Threshold 0% salary Target 13.3% salary Maximum 20% salary

C – Personal – George Weston 133 14

C – Personal – John Bason 0 20 Threshold 12% salary Target 78.3% salary Maximum 150% salary

(A x B) + C – Total STIP – George Weston 10967 11037

(A x B) + C – Total STIP – John Bason 12 150

98 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

George Weston The individual performance ratings for both executive directors were around on-target. For the Finance Director, in particular, this In this financial year George Weston had an overall benefit promise of 1/45th of final pensionable pay for each year of reflected a significant focus on a higher volume of M&A activity, much of which remains commercially confidential at this time. pensionable service up to 5 April 2016 and 1/50th of final pensionable pay for each year of pensionable service thereafter, As outlined above, this was a year where focus was put on improving performance in some key areas of our business. Whilst subject to a maximum of 2/3rds of final pensionable pay. He opted out of the Associated British Foods Pension Scheme on progress has been made, for example in Primark Germany and in Allied Bakeries, driving through the implementation of 5 April 2006 and has a deferred benefit in the Scheme; the balance of the promise is provided under an EFRBS. His pension performance improvement plans remains a focus for the coming year. benefits are payable from age 65. There is no additional benefit entitlement for members if they take early retirement. This was also a year where we progressed our commitment to the ESG agenda, identifying for each operating division the His accrued pension at 14 September 2019 was £644,247. key priorities for them to address and developing our methodology for assessing progress in this area. We have published a John Bason new responsibility report this year, which showcases the steps that we are taking. We have also appointed a non-executive In the period to 24 April 2019, John Bason had an overall benefit promise at age 62 of 2/3rds offinal pensionable pay, less an director, Richard Reid, to take a lead on ensuring that the board hears the employee voice and good progress has been made allowance for retained benefits from his previous employment. He opted out of the Associated British Foods Pension Scheme in developing methodologies to support this. We will provide more detailed disclosure in relation to the STIP performance range on 5 April 2006 and has a deferred benefit in the Scheme; the balance of the promise was provided under an EFRBS. and personal performance objectives that applied for the executive directors for 2018/19 in next year’s annual report. His pension benefits were payable from age 62. There is no additional benefit entitlement for members if they take early Whilst we recognise that it is helpful for investors to have sight of the performance range in place to be able to determine retirement. His accrued pension at 24 April 2019 was £413,300. whether the STIP range was set at a stretching level, we believethat making this disclosure a year after the end of the financial From 24 April 2019 onwards John Bason has been in receipt of a cash allowance in lieu of pension contributions of 25% year enables us to share more information that might remain commercially confidential immediately after year end. We trust that of salary. the narrative and graphics above enable investors to gain a broad understanding of how performance was positioned against the range.

Short Term Incentive Plan – 2018/19 – Cash and Shares In keeping with this approach, the following section is a disclosure of performance outcomes in 2017/18 against the performance The committee felt that the budget for 2018/19 was a very demanding one, reflecting, in particular, the expected further range that was in place in that financial year. weakness in world and European sugar prices and the fact that the resulting decline in Sugar profitability was to be offset by Short Term Incentive Plan – 2017/18 – Cash significant growth in the other businesses. As expected, Sugar profit was well below the previous year but slightly ahead of The table below details the financial performance ranges that applied in 2017/18 and the calculated outcome for the cash the target set due to strong mitigation actions through an ongoing focus on cost reduction. In the event, financial performance element of STIP. in the year was ahead of target driven by strong performance in Primark and the international grocery businesses. Cash Element Primark delivered margins above expectations as a result of better buying and lower mark-downs. There was also good 2017/18 STIP growth in Spain, France and Italy. We have continued to learn from our experience in retail in the US and there has been Threshold Target Maximum Outcome a focus on strengthening our performance in Germany by optimising our cost base, listening to customer feedback and better A = Adjusted Operating Profit £m 1,351 1,421 1,491 1,403.62 communicating our ethics to our customers there. STIP for this level of profit (as % of salary) 15% 65% 108.3% 52.59%

Our grocery businesses delivered a profit improvement of 10% at constant currency and launched some exciting new products B = Working Capital as a % of sales 15.73 14.73 13.73 13.29 in the year. However, we lost our largest UK own label bread contract with a major retailer. As a result, and as noted in the Working Capital modifier 0.8 1.0 1.2 1.2 committee Chair’s statement, we recognised a £65m impairment charge at the half year in respect of the UK bakeries.

Consequently, the depreciation that would otherwise have been charged on these assets in the second half of the year did not A x B = STIP financial element (as % of salary) 12% 65% 130% 63.1% arise, which benefited adjusted operating profit and was not reflected in the budget for the year. We have therefore adjusted the STIP target by the same amount as this depreciation upside so that executives do not enjoy a windfall benefit from this. Personal element (as % of salary) George Weston 0% 13.3% 20% 13.3% The table below shows outcomes against the specific measures in the year. We will disclose the target ranges that applied John Bason 0% 13.3% 20% 15% to the 2018/19 STIP in November 2020. Total STIP Cash (as % of salary) George Weston 12% 78.3% 150% 76.4% John Bason 12% 78.3% 150% 78.1% The STIP targets for 2017/18 anticipated the benefits of growth in Primark selling space, lower sugar prices and further progress in Grocery, Ingredients and Agriculture. When the targets were set we did not anticipate the extent of decline in EU sugar prices during the year. While the margin in Primark was better than expected and performance was good in the other businesses, the impact of sugar prices resulted in overall adjusted operating profit below the on-target level. Good working capital performance brought the overall STIP financial outcome up to 48.54% of maximum. As usual, we considered whether any discretion should be applied and concluded that this outcome was a fair reflection of performance.

98 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 99

Remuneration report

Key achievements on personal performance were as shown below. With our operating model, some of the key deliverables are shared between the Chief Executive and Finance Director while others are individual:

George Weston John Bason Divisional financial and Good financial performance across most of our businesses though Sugar profit was impacted by adverse operational objectives world and EU sugar prices. Primark saw strong trading in key markets. The repositioning of Ingredients continued. Development and delivery of Good work on a number of potential acquisitions in the year with the Acetum acquisition completed strategies, including special and integrated well. projects and transactions Strong learning from early retail experience in the USA, right-sizing certain stores and establishing a strong foundation for future growth. People and organisation Change of leadership of the Agriculture division Strengthening of the central finance team, and ongoing strengthening of recently formed including a review of the team structure and teams in the US grocery business and in the appointments into key roles. Ingredients business. Developing long-term Ongoing strong engagement with government and Ongoing strong engagement with government and business health industry bodies as part of our Brexit preparations. industry bodies as part of our Brexit preparations. Identification of key mitigation strategies for Identification of key mitigation strategies for implementation ahead of March 2019. implementation ahead of March 2019. Further improvements in health and safety, IT security improved. particularly in our Ingredients and Australian businesses. Taking into account a detailed assessment of performance against these objectives, the calculated outcome of personal performance for the CEO was on-target at 13.3% and for the Finance Director was 15%. This resulted in a bonus payment of 76.4% of salary out of a maximum 130% of salary for the Chief Executive and 78.1% of salary for the Finance Director. LTIP – 2016 –19 The share allocation in 2016 was the first made under the remuneration policy that was approved in 2016. When the 2016 –19 performance range was set in 2016, we were in a period of uncertainty following the Brexit vote. We anticipated foreign exchange rate volatility over the performance period and this is reflected in the EPS performance range that was set. This period has seen strong performance across most of our portfolio, particularly in Retail, Ingredients and international grocery. As a result, vesting of the LTIP element with the impact of Sugar removed is above target. The poorer outcome for the EPS measure including Sugar reflects the challenging environment following the end of the EU sugar regime in 2017. Low European sugar prices, reflecting the end of the regime and a regional over-supply, has reduced group profits.

Cut In Target Maximum Outcome Implications 40% of award – Group 2016–19 EPS1 115.06p 133.06p 152.06p 137.5p 24.675% ROCE modifier2 12% 15% – 20.0% X100% Total Group element 24.675% 60% of award – Group 2016–19 EPS1 114.06p 132.06p 151.06p 140.0p 42.535% without Sugar ROCE modifier2 13.5% 16.5% – 24.0% X100% Total Group without Sugar element 42.535% Calculated vesting % of maximum allocation 67.21% Discretionary adjustment (15% of calculated outcome) (10.08)% Total vesting as a % of maximum allocation 57.13% 1 The EPS range was reduced by 0.94p to reflect an accounting adjustment for the treatment of hyperinflation in Argentina. Thisadjustment made the performance range no easier or harder to achieve than the range originally set and recognised a change in treatment of the numbers included in the EPS for the year. 2 The ROCE measure is defined as the three-year average of annual average return on capital employed.

As shown above and discussed in the committee Chair’s statement, the committee has applied its discretion this year to reduce the calculated vesting outcome downwards by 15% of the pre-adjustment vesting amount in recognition of an impairment that was recognised below the line of operating profit in the course of the year. We believe that this is an appropriate response to this situation. These LTIP awards were allocated at a price of £26.25. As noted in the committee Chair’s statement at the start of this report, our executive directors have very significant shareholdings and their personal wealth has been impacted by the change in share price over the performance period. We do not believe it is appropriate to adjust the number of shares vesting to reflect this share price movement.

100 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Key achievements on personal performance were as shown below. With our operating model, some of the key deliverables are Scheme interests (audited information) shared between the Chief Executive and Finance Director while others are individual: The tables below detail the conditional share interests awarded to the executive directors in respect of the LTIP and STIP. The awards made were in line with the existing remuneration policy. LTIP awards are subject to performance conditions over George Weston John Bason the vesting period; the value of deferred STIP shares is calculated by reference to the achievement of the STIP performance Divisional financial and Good financial performance across most of our businesses though Sugar profit was impacted by adverse conditions for the award. operational objectives world and EU sugar prices. Primark saw strong trading in key markets. Long Term Incentive Plan The repositioning of Ingredients continued. Maximum award Shares vesting Development and delivery of Good work on a number of potential acquisitions in the year with the Acetum acquisition completed strategies, including special and integrated well. Face value End of Target Threshold Executive Scheme % of at grant Market price performance (50% of (10% of projects and transactions Strong learning from early retail experience in the USA, right-sizing certain stores and establishing directors name Award date salary £000 at grant2 period Maximum maximum) maximum) Release date a strong foundation for future growth. George LTIP1 12/12/16 200% 2,144 2625.0p 14/09/19 81,676 40,838 8,168 25/11/19 People and organisation Change of leadership of the Agriculture division Strengthening of the central finance team, Weston 20/11/17 200% 2,144 3076.2p 12/09/20 69,696 34,848 6,970 20/11/20 and ongoing strengthening of recently formed including a review of the team structure and 19/11/18 200% 2,180 2517.2p 18/09/21 86,604 43,302 8,660 19/11/21 teams in the US grocery business and in the appointments into key roles. John LTIP1 12/12/16 200% 1,412 2625.0p 14/09/19 53,790 26,895 5,379 25/11/19 Ingredients business. Bason 20/11/17 200% 1,412 3076.2p 12/09/20 45,901 22,951 4,590 20/11/20 Developing long-term Ongoing strong engagement with government and Ongoing strong engagement with government and 19/11/18 200% 1,440 2517.2p 18/09/21 57,206 28,603 5,721 19/11/21 business health industry bodies as part of our Brexit preparations. industry bodies as part of our Brexit preparations. 1 Identification of key mitigation strategies for Identification of key mitigation strategies for A further two-year holding period is in place for the net of tax LTIP shares after vesting. 2 The share price used to determine the number of shares in allocations is the average of the closing share prices on the fiverading t days immediately preceding the implementation ahead of March 2019. implementation ahead of March 2019. award date. Further improvements in health and safety, IT security improved. particularly in our Ingredients and Australian Short Term Incentive Plan – shares businesses. Maximum award Deferred awards Taking into account a detailed assessment of performance against these objectives, the calculated outcome of personal Shares Face value End of Shares subject to performance for the CEO was on-target at 13.3% and for the Finance Director was 15%. This resulted in a bonus payment Executive Scheme % of at grant Market price performance Maximum lapsed for service of 76.4% of salary out of a maximum 130% of salary for the Chief Executive and 78.1% of salary for the Finance Director. directors name Award date salary £000 at grant1 period shares performance condition Release date George Deferred 12/12/16 50% 536 2625.0p 16/09/17 20,419 0 20,419 25/11/19 LTIP – 2016 –19 Weston Awards 20/11/17 50% 536 3076.2p 15/09/18 17,424 9,046 8,378 20/11/20 The share allocation in 2016 was the first made under the remuneration policy that was approved in 2016. When the 2016 –19 19/11/18 50% 545 2517.2p 14/09/19 21,651 5,601 16,050 19/11/21 performance range was set in 2016, we were in a period of uncertainty following the Brexit vote. We anticipated foreign John Bason Deferred 12/12/16 50% 353 2625.0p 16/09/17 13,448 0 13,448 25/11/19 exchange rate volatility over the performance period and this is reflected in the EPS performance range that was set. Awards 20/11/17 50% 353 3076.2p 15/09/18 11,475 5,957 5,518 20/11/20 This period has seen strong performance across most of our portfolio, particularly in Retail, Ingredients and international grocery. 19/11/18 50% 360 2517.2p 14/09/19 14,302 3,700 10,602 19/11/21 As a result, vesting of the LTIP element with the impact of Sugar removed is above target. The poorer outcome for the EPS 1 The share price used to determine the number of shares in allocations is the average of the closing share prices on the fiverading t days immediately preceding the measure including Sugar reflects the challenging environment following the end of the EU sugar regime in 2017. Low European award date. sugar prices, reflecting the end of the regime and a regional over-supply, has reduced group profits. Executive directors’ shareholding requirements (audited information) Cut In Target Maximum Outcome Implications The executive directors are required to build up a beneficially-owned shareholding of 250% of salary. This requirement has been 40% of award – Group 2016–19 EPS1 115.06p 133.06p 152.06p 137.5p 24.675% met. The interests below remained the same at 30 October 2019. ROCE modifier2 12% 15% – 20.0% X100% Total Group element 24.675% Deferred 1 LTIP awards awards 60% of award – Group 2016–19 EPS 114.06p 132.06p 151.06p 140.0p 42.535% subject to subject to 2 without Sugar ROCE modifier 13.5% 16.5% – 24.0% X100% performance service Total Group without Sugar element 42.535% Beneficial condition condition Total Total Calculated vesting % of maximum allocation 67.21% Holding 14 September Beneficial as 14 September 14 September 14 September 15 September Executive directors requirement 2019 % of salary1 2019 2019 2019 2018 Discretionary adjustment (15% of calculated outcome) (10.08)% George Weston2 Total vesting as a % of maximum allocation 57.13% Wittington Investments Limited, 1 The EPS range was reduced by 0.94p to reflect an accounting adjustment for the treatment of hyperinflation in Argentina. Thisadjustment made the performance ordinary shares of 50p n/a 2,660 n/a n/a n/a 2,660 2,660 range no easier or harder to achieve than the range originally set and recognised a change in treatment of the numbers included in the EPS for the year. 2 The ROCE measure is defined as the three-year average of annual average return on capital employed. Associated British Foods plc, 250% of 15 ordinary shares of 5 /22p salary 3,610,753 7,761% 237,976 59,494 3,908,223 3,827,965 As shown above and discussed in the committee Chair’s statement, the committee has applied its discretion this year to reduce John Bason the calculated vesting outcome downwards by 15% of the pre-adjustment vesting amount in recognition of an impairment that Associated British Foods plc, 250% of 15 was recognised below the line of operating profit in the course of the year. We believe that this is an appropriate response to this ordinary shares of 5 /22p salary 157,446 512% 156,897 39,225 353,568 297,889 situation. 1 Calculated using share price as at 13 September 2019 of 2343p and base salary as at 14 September 2019. 2 George Weston is a director of Wittington Investments Limited which, together with its subsidiary Howard Investments Limited,held 431,515,108 ordinary shares These LTIP awards were allocated at a price of £26.25. As noted in the committee Chair’s statement at the start of this report, in Associated British Foods plc as at 14 September 2019. our executive directors have very significant shareholdings and their personal wealth has been impacted by the change in share price over the performance period. We do not believe it is appropriate to adjust the number of shares vesting to reflect this share price movement.

100 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 101

Remuneration report

Non-executive directors’ fees (audited information) Fees Total Fixed Pay Total Variable Pay Single total figure £000 £000 £000 £000 £000 £000 £000 £000 Non-executive directors 2019 2018 2019 2018 2019 2018 2019 2018 Michael McLintock1 409 209 409 209 – – 409 209 Javier Ferrán2 22 90 22 90 – – 22 90 Ruth Cairnie3 111 83 111 83 – – 111 83 Richard Reid4 111 95 111 95 – – 111 95 Emma Adamo 74 74 74 74 – – 74 74 Wolfhart Hauser 74 74 74 74 – – 74 74 Graham Allan5 74 2 74 2 – – 74 2 Charles Sinclair6 – 238 – 238 – – – 238 Tim Clarke7 – 19 – 19 – – – 19 1 Michael McLintock joined the board on 1 November 2017 as a non-executive director. He was made Company Chairman on 11 April 2018 and was paid a chairman fee, from that date, consistent with our remuneration policy. 2 Javier Ferrán stepped down as a director on 7 December 2018. 3 Ruth Cairnie was made Chair of the Remuneration committee with effect from 11 April 2018 and was paid a committee chair fee omfr that date. She was made Senior Independent Director on 7 December 2018 and was paid an additional fee from that date. 4 Richard Reid was given responsibility for representing the voice of our employees to the board with effect from 7 December 2018. In recognition of the additional time commitment that this entails, which we estimate to be consistent with that of chairing a committee, an additional fee waspaid to Richard from that date, consistent with our remuneration policy. 5 Graham Allan joined the board on 5 September 2018 as a non-executive director. 6 Charles Sinclair retired from the board on 11 April 2018. 7 Tim Clarke retired from the board on 30 November 2017.

Non-executive directors’ shareholding and share interests (audited information) Non-executive directors are encouraged to hold shares to a value equal to their annual fees. The following shareholdings are ordinary shares of Associated British Foods plc unless stated otherwise. The interests below remained the same at 30 October 2019.

Total Total 2019 total holding 14 September 2019 15 September 2018 as a % of annual fee4 Michael McLintock1 15,000 15,000 86% Ruth Cairnie 5,223 3,000 105% Richard Reid 3,347 3,347 68% Emma Adamo2 Wittington Investments Limited, ordinary shares of 50p 1,322 1,322 N/A 15 Associated British Foods plc, ordinary shares of 5 /22p 504,465 504,465 15,972% Wolfhart Hauser 3,918 3,918 124% Graham Allan3 3,000 Nil 95% 1 Michael McLintock was appointed a non-executive director on 1 November 2017 and Chairman on 11 April 2018. 2 Emma Adamo is a director of Wittington Investments Limited which, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary shares in Associated British Foods plc as at 14 September 2019. 3 Graham Allan was appointed a non-executive director on 5 September 2018. 4 Calculated using share price as at 13 September 2019 of 2343p and fee rate as at 14 September 2019.

Payments to past directors (audited information) No payments were made to past directors in the year. Payments for loss of office (audited information) No payments were made for loss of office in the year.

102 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

Non-executive directors’ fees (audited information) TSR performance and Chief Executive’s pay Fees Total Fixed Pay Total Variable Pay Single total figure The performance graph below illustrates the performance of the Company over the ten years from September 2009 to September 2019, in terms of total shareholder return compared with that of the companies comprising the FTSE 100 index. £000 £000 £000 £000 £000 £000 £000 £000 This index has been selected because it represents a cross-section of leading UK companies. Non-executive directors 2019 2018 2019 2018 2019 2018 2019 2018 Michael McLintock1 409 209 409 209 – – 409 209 In addition, the table below the graph provides a summary of the total remuneration of the Chief Executive over the same period. Javier Ferrán2 22 90 22 90 – – 22 90 For the purpose of calculating the value of the remuneration of the Chief Executive, data has been collated on a basis consistent Ruth Cairnie3 111 83 111 83 – – 111 83 with the ‘single figure’ methodology as defined in the applicable UK directors’ reporting regulations. Richard Reid4 111 95 111 95 – – 111 95 Emma Adamo 74 74 74 74 – – 74 74 Wolfhart Hauser 74 74 74 74 – – 74 74 5 Graham Allan 74 2 74 2 – – 74 2 Charles Sinclair6 – 238 – 238 – – – 238 Tim Clarke7 – 19 – 19 – – – 19 1 Michael McLintock joined the board on 1 November 2017 as a non-executive director. He was made Company Chairman on 11 April 2018 and was paid a chairman fee, from that date, consistent with our remuneration policy. 2 Javier Ferrán stepped down as a director on 7 December 2018. 3 Ruth Cairnie was made Chair of the Remuneration committee with effect from 11 April 2018 and was paid a committee chair fee omfr that date. She was made Senior Independent Director on 7 December 2018 and was paid an additional fee from that date. 4 Richard Reid was given responsibility for representing the voice of our employees to the board with effect from 7 December 2018. In recognition of the additional time commitment that this entails, which we estimate to be consistent with that of chairing a committee, an additional fee waspaid to Richard from that date, consistent with our remuneration policy. 5 Graham Allan joined the board on 5 September 2018 as a non-executive director. 6 ae o a oeca nveen Charles Sinclair retired from the board on 11 April 2018. 7 Tim Clarke retired from the board on 30 November 2017. 2019

Non-executive directors’ shareholding and share interests (audited information) Source: DataStream Return Index Non-executive directors are encouraged to hold shares to a value equal to their annual fees. The following shareholdings are ordinary shares of Associated British Foods plc unless stated otherwise. The interests below remained the same at Single total figure remuneration 30 October 2019. (£000) 3,886 3,182 3,859 5,832 7,470 3,056 3,133 4,849 3,843 4,146 Annual variable element (£000) 1,266 438 864 1,219 894 686 1,368 2,179 1,039 1,599 Total Total 2019 total holding Potential maximum annual 14 September 2019 15 September 2018 as a % of annual fee4 variable element (£000) 1,310 1,373 1,425 1,466 1,503 1,542 1,577 2,144 2,180 2,180 Michael McLintock1 15,000 15,000 86% Annual variable element Ruth Cairnie 5,223 3,000 105% (% of maximum) 96.68% 31.91% 60.63% 83.15% 59.49% 44.46% 86.75% 101.63%1 47.66% 73.35% Richard Reid 3,347 3,347 68% Long-term variable element – Emma Adamo2 shares vesting as % of maximum 99.12% 83.80% 97.42% 85.00% 100.00% 18.54% 0% 51.02% 100.00% 57.13% Wittington Investments Limited, ordinary shares of 50p 1,322 1,322 N/A 1 In the annual variable element, shares are valued at the average mid-market closing price over the last quarter of the financial year. In the potential maximum annual 15 Associated British Foods plc, ordinary shares of 5 /22p 504,465 504,465 15,972% variable element STIP shares are valued at the start of the year. If the share price increases over the year and performance against targets is strong, the actual Wolfhart Hauser 3,918 3,918 124% payment may appear to be above maximum. We do not allow more than the maximum number of shares to vest. 3 Graham Allan 3,000 Nil 95% At close of business on 13 September 2019, the last trading day before the end of the financial year, the market value of the 1 Michael McLintock was appointed a non-executive director on 1 November 2017 and Chairman on 11 April 2018. Company’s ordinary shares was 2343p. During the previous 12 months, the market value ranged from 2041p to 2638p. 2 Emma Adamo is a director of Wittington Investments Limited which, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary shares in Associated British Foods plc as at 14 September 2019. Executive directors serving as non-executive directors 3 Graham Allan was appointed a non-executive director on 5 September 2018. 4 Calculated using share price as at 13 September 2019 of 2343p and fee rate as at 14 September 2019. During the year, George Weston served as a non-executive director of Wittington Investments Limited, for which he received no compensation. Payments to past directors (audited information) John Bason is a non-executive director and chairman of the audit committee of Compass Group PLC, for which he received a fee No payments were made to past directors in the year. of £138,650 in the 2018/19 financial year. He also served as chairman of the charity FareShare but received no compensation Payments for loss of office (audited information) in respect of this role. No payments were made for loss of office in the year. Executive pay in the context of the group’s wider pay practices, dividends and taxes paid CEO Pay Ratio Methodology Lower Year used quartile Median Upper Quartile Ratio of CEO pay to employee pay 2018/19 Option B 253:1 238:1 169:1 The Company has chosen to disclose the above pay ratio data a year earlier than it is requiredto under the regulations. Our pay ratio will vary significantly year-to-year due to the high proportion of variable pay in the Chief Executive’s total reward. We have chosen to use Option B of the available methodologies to calculate the CEO pay ratio. This methodology is based on the data collected as part of gender pay reporting. Given the complexity of our de-centralised group, which operates multiple HR information systems, Option B enabled us accurately to identify the hourly rates at each quartile of our Great Britain employees from the 5 April 2019 snapshot used in gender pay reporting. From these hourly rates, it is possible to identify the individuals at each rate and calculate the average quartile (as each quartile point represents multiple individuals) single figure of total remuneration. Where relevant we have pro-rated the data for individuals to reflect full-time equivalent remuneration as the CEO role is a full-time role and we needed to compare like with like. Please note that gender pay data is not collected for Northern Ireland, so this data is not for the whole UK population.

102 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 103

Remuneration report

The above data is particularly informed by the pay and reward policies for our colleagues in Primark. As our businesses are diverse and are run in a decentralised manner, each operates their own approach to remuneration, within guidelines from the group. The pay ratio for our non-retail employees would be lower than the pay ratios shown in the table above as we have a greater number of specialised roles that require specific skills and training. Market pay levels for such roles are higher than for less skilled roles.

Percentage change in remuneration of the Chief Executive We operate a diverse portfolio of businesses in 52 countries across the world. Our businesses operate close to local markets and under local consumer and employment brands. Within an umbrella expectation that our organisations treat our employees fairly and pay them competitively, we give our businesses considerable flexibility to determine remuneration approaches that are appropriate for their business and that align with their individual organisational and local cultures. This means that in someparts of our organisation remuneration is more focused on fixed pay whilst in others, such as in France, all employees participate in profit sharing or other incentive arrangements. Across our operating divisions and businesses, the most senior roles participate in a similar reward model to that used for the executive directors. Our business leadership teams understand and can explain to employees across the group how our remuneration approach works. In December 2018, the increase in the Chief Executive’s salary was 0% and the average increase for our UK employees was 2%−3%. The CEO’s total remuneration this year was 7.9% higher than last year, reflecting good performance in our non-Sugar business. We believe that it is appropriate that the remuneration of our directors should be closely aligned to the underlying performance of the Company, which means their remuneration will be much more variable than that of other employees, depending on performance outcomes compared with targets. The overall increase in expenditure on reward for all employees was 3%. This number is based on aggregate data presented in the table below, which include increases in headcount, as it is neither practical nor worthwhile, in a decentralised group of our size, to separate the increase in expenditure on incentives and taxable benefits. Relative importance of spend on pay A year-on-year comparison of the relative importance of pay with significant distributions to shareholders and others is shown below.

2019 2018 Change Expenditure £m £m % Pay spend for the group 2,758 2,668 3% Dividends relating to the period 366 356 3% Taxes paid 269 297 -9%

Implementation of policy 2019/20 Base salary Executive directors’ salaries are subject to review on 1 December 2019. The committee has determined not to increase salaries this year.

Increase in Increase in Dec 2018 Dec 2019 % Dec 2019 £ Dec 2019 George Weston £1,090,000 0% £0 £1,090,000 John Bason £720,000 0% £0 £720,000

Benefits and pensions We do not currently anticipate any changes being made to benefits and pensions for executives in 2019/20.

104 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report

The above data is particularly informed by the pay and reward policies for our colleagues in Primark. As our businesses are STIP 2019/20 – Cash and Shares diverse and are run in a decentralised manner, each operates their own approach to remuneration, within guidelines from the If approved by shareholders, the STIP will be operated in line with the revised remuneration policy. group. The pay ratio for our non-retail employees would be lower than the pay ratios shown in the table above as we have a For 2019/20, up to 50% of salary can be earned under the shares element of the STIP, and up to 150% of salary can be earned greater number of specialised roles that require specific skills and training. Market pay levels for such roles are higher than for under the cash element. The STIP shares are allocated at the start of the financial year and lapse at the end of the year to the less skilled roles. extent to which performance conditions have not been met. The balance of the shares remain conditional, subject to the Percentage change in remuneration of the Chief Executive executive remaining with the company, for a further two years and will vest in 2022. We operate a diverse portfolio of businesses in 52 countries across the world. Our businesses operate close to local markets The split between financial and personal performance measures will be as shown in the table below. and under local consumer and employment brands. Within an umbrella expectation that our organisations treat our employees fairly and pay them competitively, we give our businesses considerable flexibility to determine remuneration approaches that are Shares Element – Allocation date value appropriate for their business and that align with their individual organisational and local cultures. This means that in someparts of shares as % of salary Cash Element – Opportunity as a % of salary of our organisation remuneration is more focused on fixed pay whilst in others, such as in France, all employees participate in Modification Modification Based on based Based on based Overall profit sharing or other incentive arrangements. operating on average Overall shares operating profit on average financial Personal Overall cash profit only working capital element only working capital element element element Across our operating divisions and businesses, the most senior roles participate in a similar reward model to that used for the Maximum 41.67% x1.2 50% 108.33% x1.2 130.00% 20.00% 150.00% executive directors. Our business leadership teams understand and can explain to employees across the group how our On-target (budget) 25% x1.0 25% 65.00% x1.0 65.00% 13.33% 78.33% remuneration approach works. Threshold 6.25% x0.8 5% 15.00% x0.8 12.00% 0.00% 12.00% In December 2018, the increase in the Chief Executive’s salary was 0% and the average increase for our UK employees was Below threshold 0% x0.8 0% 0.00% x0.8 0.00% 0.00% 0.00% 2%−3%. The CEO’s total remuneration this year was 7.9% higher than last year, reflecting good performance in our non-Sugar The targets used for our 2019/20 STIP will be disclosed in the 2021 annual report. Achievement against financial targets will business. We believe that it is appropriate that the remuneration of our directors should be closely aligned to the underlying be disclosed in our 2020 Remuneration report. performance of the Company, which means their remuneration will be much more variable than that of other employees, depending on performance outcomes compared with targets. LTIP – 2019/20 awards (vesting in 2022) If approved by shareholders, the LTIP will be operated in line with the revised remuneration policy with the performance The overall increase in expenditure on reward for all employees was 3%. This number is based on aggregate data presented targets below. in the table below, which include increases in headcount, as it is neither practical nor worthwhile, in a decentralised group of our size, to separate the increase in expenditure on incentives and taxable benefits. Modifier – Average Group ROCE Modifier – Average Sugar Group EPS without Sugar in FY2021/22 without Sugar over 3 years ROCE1 over 3 years Relative importance of spend on pay Threshold Target Maximum Threshold Maximum Threshold Maximum A year-on-year comparison of the relative importance of pay with significant distributions to shareholders and others is A - Shares vesting as % shown below. of award 10% 50% 100% B - Modifier that then applies 80% 100% 80% 100% 2019 2018 Change Expenditure £m £m % Performance Range 159p 173p 188p 10% 12% 5% 8% Pay spend for the group 2,758 2,668 3% 1 The Sugar ROCE measure has the book value of goodwill added to the denominator. Dividends relating to the period 366 356 3% The earnings per share performance range is set on an IFRS 16 basis and is intended to be stretching. The committee conducted Taxes paid 269 297 -9% an analysis of the growth potential and challenges facing each of the divisions over the performance period. These ranges were Implementation of policy 2019/20 then tested to ensure that they were sufficiently stretching. Base salary As detailed in our remuneration policy section, the Group ROCE without Sugar modifier is set at a level that is intended to guard Executive directors’ salaries are subject to review on 1 December 2019. The committee has determined not to increase salaries against poor investment decisions. It is not set at a level that is intended to drive growth in returns and acts only as a downward this year. modifier to the calculated incentive outcomes. Increase in Increase in As detailed in the Remuneration committee Chair’s statement, the Sugar return range is set to be stretching in the current Dec 2018 Dec 2019 % Dec 2019 £ Dec 2019 context of low world sugar prices and the relatively recent end of the European sugar regime in 2017. The bottom end of this George Weston £1,090,000 0% £0 £1,090,000 John Bason £720,000 0% £0 £720,000 return range is broadly in line with market expectations of performance in the first year of the performance cycle. This modifier acts only as a downward modifier to the calculated incentive outcomes and with this performance range, the executive directors Benefits and pensions will need to improve returns to avoid the LTIP based on EPS being reduced. We do not currently anticipate any changes being made to benefits and pensions for executives in 2019/20. Service contracts Date of current contract/letter of Unexpired period Date of appointment appointment Notice from Company Notice from individual of service contract Executive directors George Weston 19/04/99 01/06/05 12 months 12 months Rolling contract John Bason 04/05/99 24/04/19 12 months 12 months Rolling contract Non-executive directors Michael McLintock 01/11/17 11/04/18 6 months 6 months Rolling contract Emma Adamo 09/12/11 09/12/11 6 months 6 months Rolling contract Ruth Cairnie 01/05/14 11/04/18 6 months 6 months Rolling contract Wolfhart Hauser 14/01/15 14/01/15 6 months 6 months Rolling contract Richard Reid 14/04/16 13/04/16 6 months 6 months Rolling contract Graham Allan 05/09/18 05/09/18 6 months 6 months Rolling contract Copies of service contracts are available for inspection at the Company’s head office.

104 Associated British Foods plc Annual Report and Accounts 2019 AssociatedAnnual Report British and Foods Accounts plc 2019 AnnualAssociated Report and British Accounts Foods 2019 plc 105

Remuneration report

Non-executive directors’ fees Increase in Dec 2018 Dec 2019 Dec 2019 Chairman £410,000 £0 £410,000 Additional fee for Senior Independent Director responsibilities £21,000 £0 £21,000 Additional fee for committee Chair (Audit/Remuneration only) £21,000 £0 £21,000 Additional fee for responsibility for employee voice (equivalent time commitment to committee Chair)1 £21,000 £0 £21,000 Director £74,000 £0 £74,000 1 Note that additional fees reflect the additional time commitment and responsibilities taken on by an individual at the request of the Company. The above fees were reviewed in 2019 and it was determined that the increases above were appropriate to reflect the scope and responsibilities of these roles. Statement on shareholder voting At the last AGM in December 2018 the voting results on resolution 2, to receive and approve the Remuneration report for the year ended 15 September 2018, were as follows: the percentage ‘for’ was 96.25% and the percentage ‘against’ was 3.75%. At the AGM in December 2017, the voting result on resolution 2, to receive and approve the Remuneration policy were as follows: the percentage ‘for’ was 96.91% and the percentage ‘against’ was 3.09%. Compliance Where information in this report has been audited by Ernst & Young LLP it has been clearly indicated. The report has been prepared in line with the requirements of The Large and Medium-sized Companies Regulations (as amended), the recommendations of the UK Corporate Governance Code (April 2016) and the requirements of the UKLA Listing Rules. Remuneration committee advisers and fees Following a competitive tender in 2003, Willis Towers Watson (WTW, then Towers Perrin) was selected to provide independent advice to the committee. The committee has retained WTW in this role because it values the robust data and continuity of advice provided over the long term. The committee remains satisfied that the advice from WTW is independent, thoughtful and challenging and so has not put this out to tender. The committee will keep this position under review. WTW is a member of the Remuneration Consultants Group and adheres to its code in relation to executive remuneration consulting. The only other advice that WTW provides to the Company is in survey provision, job evaluation and remuneration benchmarking. The fees paid to WTW for committee assistance over the past financial year totalled £77,630. Herbert Smith Freehills LLP provide the Company with legal advice. Advice from Herbert Smith Freehills is made available to the committee, where it relates to matters within its remit. By order of the board Paul Lister Company Secretary 5 November 2019

106 Associated British Foods plc Annual Report and Accounts 2019

Governance Remuneration report Directors’ report

Non-executive directors’ fees Introduction meeting by at least two members of the Disclosures required under Increase in The directors of Associated British Company. The Articles require directors Listing Rule 9.8.4R Dec 2018 Dec 2019 Dec 2019 Foods plc present their report for the to retire and submit themselves for The following table is included to Chairman £410,000 £0 £410,000 52 weeks ended 14 September 2019, election at the first AGM following meet the requirements of Listing Rule Additional fee for Senior Independent Director responsibilities £21,000 £0 £21,000 in accordance with section 415 of the appointment and all directors who held section 9.8.4R. The information Additional fee for committee Chair (Audit/Remuneration only) £21,000 £0 £21,000 Companies Act 2006. The Financial office at the time of the two preceding required to be disclosed by that section, Additional fee for responsibility for employee voice Conduct Authority’s Disclosure Guidance AGMs and, in any event, not less where applicable to the Company, (equivalent time commitment to committee Chair)1 £21,000 £0 £21,000 and Transparency Rules and Listing than one-third of the relevant directors can be located in the annual report Director £74,000 £0 £74,000 Rules also require the Company to (excluding those directors who retire and accounts at the references set 1 Note that additional fees reflect the additional time commitment and responsibilities taken on by an individual at the request of the Company. make certain disclosures, some of other than by rotation), to submit out below. The above fees were reviewed in 2019 and it was determined that the increases above were appropriate to reflect the scope which have been included in other themselves for re-election. The Articles appropriate sections of the annual notwithstanding, all directors will stand Location in and responsibilities of these roles. Information required annual report report and accounts. for re-election at the AGM this year (12) Shareholder Note 23 on Statement on shareholder voting in compliance with the 2018 Code. The information set out on page 110 waiver of dividends page 153 At the last AGM in December 2018 the voting results on resolution 2, to receive and approve the Remuneration report for the Details of unexpired terms of directors’ and the following cross-referenced (13) Shareholder waiver Note 23 on year ended 15 September 2018, were as follows: the percentage ‘for’ was 96.25% and the percentage ‘against’ was 3.75%. service contracts are set out in the material, is incorporated into this of future dividends page 153 Remuneration report on page 105. At the AGM in December 2017, the voting result on resolution 2, to receive and approve the Remuneration policy were as Directors’ report: (14) Board statement Directors’ report follows: the percentage ‘for’ was 96.91% and the percentage ‘against’ was 3.09%. Power of directors on relationship on pages 107 likely future developments in the agreement with and 108 • The directors are responsible for Compliance group’s business (pages 12 to 49); controlling shareholder managing the business of the Company Where information in this report has been audited by Ernst & Young LLP it has been clearly indicated. The report has been • greenhouse gas emissions (page 60); and may exercise all the powers of the Paragraphs (1), (2), (4), (5), (6), (7), (8), (9), prepared in line with the requirements of The Large and Medium-sized Companies Regulations (as amended), the • the board of directors (pages 68 Company subject to the provisions (10) and (11) of Listing Rule 9.8.4R are recommendations of the UK Corporate Governance Code (April 2016) and the requirements of the UKLA Listing Rules. and 69); of relevant statutes, to any directions not applicable. Remuneration committee advisers and fees • information on our employees given by special resolution and to the Following a competitive tender in 2003, Willis Towers Watson (WTW, then Towers Perrin) was selected to provide independent (page 56); and Company’s Articles. The Articles, for Relationship agreement advice to the committee. The committee has retained WTW in this role because it values the robust data and continuity of • corporate governance report example, contain specific provisions and with controlling shareholders advice provided over the long term. The committee remains satisfied that the advice from WTW is independent, thoughtful (pages 70 to 82). restrictions concerning the Company’s Any person who exercises or controls, on their own or together with any person and challenging and so has not put this out to tender. The committee will keep this position under review. Results and dividends power to borrow money. Powers with whom they are acting in concert, The consolidated income statement is relating to the issuing of shares are WTW is a member of the Remuneration Consultants Group and adheres to its code in relation to executive remuneration 30% or more of the votes able to be on page 119. Profit for the financial year also included in the Articles and such consulting. The only other advice that WTW provides to the Company is in survey provision, job evaluation and remuneration cast at general meetings of a company attributable to equity shareholders authorities are renewed by shareholders benchmarking. The fees paid to WTW for committee assistance over the past financial year totalled £77,630. are known as a ‘controlling shareholder’ amounted to £878m. at the AGM each year. Herbert Smith Freehills LLP provide the Company with legal advice. Advice from Herbert Smith Freehills is made available under the Listing Rules. The Listing Directors’ indemnities and insurance to the committee, where it relates to matters within its remit. The directors recommend a final Rules require companies with controlling dividend of 34.3p per ordinary share to One director of operating subsidiaries shareholders to enter into an agreement By order of the board be paid, subject to shareholder approval, benefited from qualifying third-party which is intended to ensure that the Paul Lister on 10 January 2020. Together with the indemnity provisions provided by the controlling shareholders comply with Company Secretary interim dividend of 12.05p per share paid Company’s wholly-owned subsidiary, certain independence provisions in the 5 November 2019 on 5 July 2019, this amounts to 46.35p ABF Investments plc, during the financial Listing Rules and which must contain for the year. Dividends are detailed year and at the date of this report. undertakings that: on page 137. Also, the directors of a subsidiary • transactions and arrangements with Directors company that acts as trustee of a the controlling shareholder (and/or any The names of the persons who were pension scheme benefited from a of its associates) will be conducted directors of the Company during the qualifying pension scheme indemnity at arm’s length and on normal financial year and as at 5 November provision during the financial year and commercial terms; 2019 appear on pages 68 and 69. at the date of this report. • neither the controlling shareholder Javier Ferrán retired as a director of The Company has in place appropriate nor any of its associates will take any the Company on 7 December 2018. directors’ and officers’ liability insurance action that would have the effect of preventing the listed company from Appointment of directors cover in respect of legal action against its complying with its obligations under The Company’s articles of association executive and non-executive directors, the Listing Rules; and (the ‘Articles’) give directors the amongst others. • neither the controlling shareholder power to appoint and replace directors. Directors’ share interests nor any of its associates will Under the terms of reference of Details regarding the share interests of propose or procure the proposal the Nomination committee, any the directors (and their persons closely of a shareholder resolution which is appointment must be recommended by associated) in the share capital of the intended or appears to be intended the Nomination committee for approval Company, including any interests under to circumvent the proper application by the board of directors. A person who the long term incentive plan and any of the Listing Rules. is not recommended by the directors deferred awards, are set out in the may only be appointed as a director Remuneration report on pages 101 where details of that director have been and 102. provided at least seven and not more than 35 days prior to the relevant

106 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 107

Directors’ report

Wittington Investments Limited Major interests in shares Authority to issue shares (‘Wittington’) and, through their As at 14 September 2019, the Company At the last AGM, held on 7 December control of Wittington, the trustees had received formal notification, 2018, authority was given to the of the Garfield Weston Foundation under the Disclosure Guidance and directors to allot unissued relevant (the ’Foundation’) are controlling Transparency Rules, of the following securities in the Company up to a shareholders of the Company. Certain material interest in shares: maximum of an amount equivalent to other individuals, including certain two-thirds of the shares in issue (of The Company was notified on 19 members of the Weston family who which one-third must be offered by way October 2018 that The Capital Group hold shares in the Company (and of rights issue). This authority expires on Companies, Inc. had a shareholding of including two of the Company’s the date of this year’s AGM to be held 39,523,864 shares, which is 4.99% of directors, George Weston and Emma on 6 December 2019. No such shares the issued share capital and voting rights Adamo) are, under the Listing Rules, have been issued. of the Company. treated as acting in concert with The directors propose to renew this Wittington and the trustees of the Details of the Company’s controlling authority at the 2019 AGM for the Foundation and are therefore also shareholders for the purpose of the forthcoming year. A further special treated as controlling shareholders of the Listing Rules who, as at 14 September resolution passed at the 2018 meeting Company. Wittington, the trustees of 2019, had a combined interest in granted authority to the directors the Foundation and these individuals approximately 59.53% of the voting to allot equity securities in the together comprise the controlling rights in the Company’s ordinary shares Company for cash, without regard shareholders of the Company and, at are set out in the previous column. to the pre-emption provisions of 14 September 2019, had a combined the Companies Act 2006 in certain interest in approximately 59.53% Share capital circumstances. This authority also of the Company’s voting rights. Details of the Company’s share capital and the rights attached to the expires on the date of the 2019 AGM The board confirms that, in accordance Company’s shares are set out in note 21 and the directors will seek to renew with the Listing Rules, on 14 November on page 150. The Company has one this authority for the forthcoming year. 2014 the Company entered into a class of share capital: ordinary shares 15 Authority to purchase own shares relationship agreement with Wittington of 5 /22p. The rights and obligations The Companies Act 2006 empowers the and the trustees of the Foundation attaching to these shares are Company to purchase its own shares containing the required undertakings (the governed by English law and the subject to the necessary shareholder ‘Relationship Agreement’ as amended Company’s Articles. approval. The Company has no existing and restated on 29 March 2019). authority to purchase its own shares. Under the terms of the Relationship No shareholder holds securities carrying special rights with regard to the control Agreement, Wittington has agreed Amendment to Company’s articles of the Company. There are no to procure compliance with the of association restrictions on voting rights. undertakings by the other individuals Any amendments to the Articles may be who are treated as controlling There are no restrictions on the holding made in accordance with the provisions shareholders (the ‘Non-signing or transfer of the ordinary shares other of the Companies Act 2006 by way of Controlling Shareholders’). The board than the standard restrictions for an special resolution of the shareholders. confirms that, during the period English incorporated company set out under review: in article 32 of the Company’s Articles. • the Company has complied with the independence provisions included in the Relationship Agreement; • so far as the Company is aware, the independence provisions included in the Relationship Agreement have been complied with by the controlling shareholders and their associates; and • so far as the Company is aware, the procurement obligation included in the Relationship Agreement as regards compliance with the independence provisions by the Non-signing Controlling Shareholders and their associates, has been complied with by Wittington.

108Annual ReportAssociated and Accounts British 2019 Foods plc AssociatedAnnual British Report Foods and plcAccounts 2019 108

Governance Directors’ report

Wittington Investments Limited Major interests in shares Authority to issue shares Significant agreements – change Financial risk management Auditor (‘Wittington’) and, through their As at 14 September 2019, the Company At the last AGM, held on 7 December of control Details of the group’s use of financial Resolutions for the reappointment control of Wittington, the trustees had received formal notification, 2018, authority was given to the The group has contractual arrangements instruments, together with information of Ernst & Young LLP as auditor of of the Garfield Weston Foundation under the Disclosure Guidance and directors to allot unissued relevant with many parties including directors, on our risk objectives and policies, the Company and to authorise the (the ’Foundation’) are controlling Transparency Rules, of the following securities in the Company up to a employees, customers, suppliers and including the policy for hedging each Audit committee to determine its shareholders of the Company. Certain material interest in shares: maximum of an amount equivalent to banking groups. The following major type of forecasted transaction for remuneration are to be proposed at other individuals, including certain two-thirds of the shares in issue (of arrangements are considered to be which hedge accounting is used, and the forthcoming AGM. The Company was notified on 19 members of the Weston family who which one-third must be offered by way significant in terms of their potential our exposure to price, credit, liquidity, October 2018 that The Capital Group Annual general meeting hold shares in the Company (and of rights issue). This authority expires on impact on the business of the group as cash flow and interest rate risks, can be Companies, Inc. had a shareholding of The AGM will be held on 6 December including two of the Company’s the date of this year’s AGM to be held a whole and could alter or terminate on found in note 25 on pages 154 to 164. 39,523,864 shares, which is 4.99% of 2019 at 11.00 am at Congress Centre, directors, George Weston and Emma on 6 December 2019. No such shares a change of control of the Company: the issued share capital and voting rights Research and development 28 Great Russell Street, London Adamo) are, under the Listing Rules, have been issued. of the Company. the group has a number of borrowing Innovative use of existing and emerging WC1B 3LS. Details of the resolutions treated as acting in concert with • The directors propose to renew this facilities provided by various banking technologies will continue to be crucial to be proposed are set out in a separate Wittington and the trustees of the Details of the Company’s controlling authority at the 2019 AGM for the groups. These facility agreements to the successful development of new Notice of Meeting which accompanies Foundation and are therefore also shareholders for the purpose of the forthcoming year. A further special generally include change of control products and processes for the group. this report for shareholders receiving treated as controlling shareholders of the Listing Rules who, as at 14 September resolution passed at the 2018 meeting provisions which, in the event of a hard copy documents and which is Company. Wittington, the trustees of 2019, had a combined interest in The Company has a major technical granted authority to the directors change in ownership of the Company, available at www.abf.co.uk for those the Foundation and these individuals approximately 59.53% of the voting centre in the UK at the Allied Technical to allot equity securities in the could result in their renegotiation who elected to receive documents together comprise the controlling rights in the Company’s ordinary shares Centre. Facilities also exist at ACH Food Company for cash, without regard or withdrawal. The most significant electronically. All resolutions for which shareholders of the Company and, at are set out in the previous column. Companies in the USA, AB Mauri in to the pre-emption provisions of of these are the £1.2bn syndicated notice has been given will be decided 14 September 2019, had a combined Australia and the Netherlands, and Share capital the Companies Act 2006 in certain loan facility signed on 15 July 2014, on a poll. interest in approximately 59.53% AB Enzymes in Germany. These centres Details of the Company’s share circumstances. This authority also maturing in July 2021, which was of the Company’s voting rights. support the technical resources of the On behalf of the board capital and the rights attached to the expires on the date of the 2019 AGM undrawn at the year end. In the trading divisions in the search for new The board confirms that, in accordance Company’s shares are set out in note 21 and the directors will seek to renew event of a change in ownership Paul Lister technology and in monitoring and with the Listing Rules, on 14 November on page 150. The Company has one this authority for the forthcoming year. of the Company, the lenders Company Secretary maintaining high standards of quality 2014 the Company entered into a class of share capital: ordinary shares may request cancellation of the 5 November 2019 15 Authority to purchase own shares and food safety. relationship agreement with Wittington of 5 /22p. The rights and obligations commitment and repayment of The Companies Act 2006 empowers the Associated British Foods plc and the trustees of the Foundation attaching to these shares are any outstanding amounts; Branches Company to purchase its own shares Registered office: containing the required undertakings (the governed by English law and the • £346m (approximate sterling The Company, through various subject to the necessary shareholder Weston Centre ‘Relationship Agreement’ as amended Company’s Articles. equivalent) of private placement subsidiaries, has established branches approval. The Company has no existing 10 Grosvenor Street and restated on 29 March 2019). notes in issue to institutional investors. in a number of different countries No shareholder holds securities carrying authority to purchase its own shares. London Under the terms of the Relationship In the event of a change in ownership in which the group operates. special rights with regard to the control W1K 4QY Agreement, Wittington has agreed Amendment to Company’s articles of the Company, the Company is of the Company. There are no Disclosure of information to auditor Company No. 293262 to procure compliance with the of association obliged to make an offer of immediate restrictions on voting rights. Each of the directors who held office at undertakings by the other individuals Any amendments to the Articles may be repayment to the remaining note the date of approval of this Directors’ who are treated as controlling There are no restrictions on the holding made in accordance with the provisions holders; and report confirms that: shareholders (the ‘Non-signing or transfer of the ordinary shares other of the Companies Act 2006 by way of • cross currency swaps in place totalling Controlling Shareholders’). The board than the standard restrictions for an special resolution of the shareholders. $300m to swap a proportion of private • so far as each director is aware, confirms that, during the period English incorporated company set out placement debt denominated in there is no relevant audit information under review: in article 32 of the Company’s Articles. US dollars to euros. of which the Company’s auditor is unaware; and • the Company has complied with the There are no agreements between the independence provisions included Company and its directors or employees • each director has taken all the in the Relationship Agreement; providing for compensation for loss of reasonable steps that they ought to have taken as a director to make • so far as the Company is aware, the office or employment that occurs as independence provisions included in a result of a takeover bid. themself aware of any relevant audit the Relationship Agreement have information and to establish that the Political donations been complied with by the controlling Company’s auditor is aware of that During the year, the Company did not shareholders and their associates; and information. make any political donations or incur any • so far as the Company is aware, the political expenditure (within the ordinary For these purposes, relevant audit procurement obligation included in the meaning of those words) in the UK or information means information needed Relationship Agreement as regards EU. However, under the wider definition by the Company’s auditor in connection compliance with the independence of Part 14 of the Companies Act 2006, with the preparation of its report on provisions by the Non-signing a subsidiary of the Company did incur pages 111 to 118. Controlling Shareholders and their political expenditure to the approximate associates, has been complied with value of £3,500 during the year. by Wittington.

Annual Report and Accounts 2019 Associated British Foods plc 108 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 109 107

Statement of directors’ responsibilities

Statement of directors’ • for the parent company financial Responsibility statement of responsibilities in respect of the statements, state whether applicable the directors in respect of the annual report and the financial UK Accounting Standards have been annual report statements followed, subject to any material We confirm that to the best of our The directors are responsible for departures disclosed and explained knowledge: preparing the annual report and the in the parent company financial • the financial statements, prepared in group and parent company financial statements; and accordance with the applicable set statements in accordance with • prepare the financial statements on of accounting standards, give a true applicable law and regulations. the going concern basis unless it is and fair view of the assets, liabilities, inappropriate to presume that the Company law requires the directors financial position and profit or loss of group and the parent company will to prepare group and parent company the Company and the undertakings continue in business. financial statements for each financial included in the consolidation taken year. Under that law they are required to The directors are responsible for keeping as a whole; and prepare the group financial statements adequate accounting records that are • the Strategic report includes a fair in accordance with IFRSs as adopted sufficient to show and explain the parent review of the development and by the EU and applicable law and company’s transactions and disclose performance of the business and have elected to prepare the parent with reasonable accuracy at any time the the position of the Company and company financial statements in financial position of the parent company the undertakings included in the accordance with UK Accounting and enable them to ensure that its consolidation taken as whole, Standards, including FRS 101 financial statements comply with the together with a description of the Reduced Disclosure Framework. Companies Act 2006. They have general principal risks and uncertainties responsibility for taking such steps that they face. Under company law the directors must as are reasonably open to them to not approve the financial statements On behalf of the board safeguard the assets of the group unless they are satisfied that they give a and to prevent and detect fraud and true and fair view of the state of affairs Michael McLintock other irregularities. of the group and parent company and Chairman of their profit or loss for that period. Under applicable law and regulations, George Weston In preparing each of the group and the directors are also responsible for Chief Executive parent company financial statements, preparing a Strategic report, Directors’ the directors are required to: report, Remuneration report and John Bason Corporate governance statement that • select suitable accounting policies Finance Director complies with that law and those and then apply them consistently; regulations. The directors are 5 November 2019 • make judgements and estimates responsible for the maintenance and that are reasonable and prudent; integrity of the corporate and financial for the group financial statements, • information included on the Company’s state whether they have been website. Legislation in the UK governing prepared in accordance with IFRSs the preparation and dissemination of as adopted by the EU; financial statements may differ from legislation in other jurisdictions.

110Annual ReportAssociated and Accounts British 2019 Foods plc AssociatedAnnual British Report Foods and plcAccounts 2019 108

Governance Statement of directors’ responsibilities Independent Auditor’s Report to the members of Associated British Foods plc

Statement of directors’ • for the parent company financial Responsibility statement of Opinion responsibilities in respect of the statements, state whether applicable the directors in respect of the In our opinion: annual report and the financial UK Accounting Standards have been annual report • Associated British Foods plc’s group financial statements and parent company financial statements (the ‘financial statements’) statements followed, subject to any material We confirm that to the best of our give a true and fair view of the state of the group’s and of the parent company’s affairs as at 14 September 2019 and of the The directors are responsible for departures disclosed and explained knowledge: group’s profit for the 52 weeks then ended; preparing the annual report and the in the parent company financial • the financial statements, prepared in the group financial statements have been properly prepared in accordance with International Financial Reporting Standards group and parent company financial statements; and • accordance with the applicable set as adopted by the European Union (IFRSs as adopted by the EU); statements in accordance with • prepare the financial statements on of accounting standards, give a true the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted applicable law and regulations. the going concern basis unless it is • and fair view of the assets, liabilities, Accounting Practice; and inappropriate to presume that the Company law requires the directors financial position and profit or loss of group and the parent company will • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards to prepare group and parent company the Company and the undertakings continue in business. the group financial statements, Article 4 of the IAS Regulation. financial statements for each financial included in the consolidation taken year. Under that law they are required to The directors are responsible for keeping as a whole; and We have audited the financial statements of Associated British Foods plc, which comprise: prepare the group financial statements adequate accounting records that are • the Strategic report includes a fair Group Parent company in accordance with IFRSs as adopted sufficient to show and explain the parent review of the development and Consolidated balance sheet as at 14 September 2019 Balance sheet as at 14 September 2019 by the EU and applicable law and company’s transactions and disclose performance of the business and Consolidated income statement for the 52 weeks then ended Statement of changes in equity for the 52 weeks then ended have elected to prepare the parent with reasonable accuracy at any time the the position of the Company and Consolidated statement of comprehensive income for the 52 weeks Related notes 1 to 10 of the financial statements, company financial statements in financial position of the parent company the undertakings included in the then ended including a summary of significant accounting policies accordance with UK Accounting and enable them to ensure that its consolidation taken as whole, Consolidated statement of changes in equity for the 52 weeks then ended Standards, including FRS 101 financial statements comply with the together with a description of the Consolidated cash flow statement for the 52 weeks then ended Reduced Disclosure Framework. Companies Act 2006. They have general principal risks and uncertainties Related notes 1 to 29 to the financial statements, including a summary responsibility for taking such steps that they face. of significant accounting policies Under company law the directors must as are reasonably open to them to not approve the financial statements On behalf of the board safeguard the assets of the group The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and unless they are satisfied that they give a IFRSs as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company and to prevent and detect fraud and Michael McLintock true and fair view of the state of affairs financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure other irregularities. Chairman of the group and parent company and Framework” (United Kingdom Generally Accepted Accounting Practice). of their profit or loss for that period. Under applicable law and regulations, George Weston In preparing each of the group and the directors are also responsible for Basis for opinion Chief Executive parent company financial statements, preparing a Strategic report, Directors’ We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial the directors are required to: report, Remuneration report and John Bason Corporate governance statement that statements section of our report below. We are independent of the group and company in accordance with the ethical • select suitable accounting policies Finance Director complies with that law and those requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied and then apply them consistently; regulations. The directors are 5 November 2019 to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. • make judgements and estimates responsible for the maintenance and that are reasonable and prudent; We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. integrity of the corporate and financial for the group financial statements, • information included on the Company’s Conclusions relating to principal risks, going concern and viability statement state whether they have been website. Legislation in the UK governing We have nothing to report in respect of the following information in the annual report and accounts, in relation to which the ISAs prepared in accordance with IFRSs the preparation and dissemination of (UK) require us to report to you whether we have anything material to add or draw attention to: as adopted by the EU; financial statements may differ from • the disclosures in the annual report and accounts, set out on pages 62 to 66, that describe the principal risks and explain how legislation in other jurisdictions. they are being managed or mitigated; • the directors’ confirmation, set out on page 76 in the annual report and accounts, that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity; • the directors’ statement, set out on page 75 in the financial statements, about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements; • whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or • the directors’ explanation, set out on page 67 in the annual report and accounts, as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Overview of our audit approach

Key audit matters Audit scope Materiality • Assessment of the carrying value of • We performed an audit of the complete • We used a group materiality of goodwill, other intangible assets and financial information of 130 components £66m, which represents 5% of profit property, plant and equipment and audit procedures on specific balances before taxation, adjusted for exceptional • Tax provisions for a further 44 components. items and certain significant profits less • Revenue recognition, including the risk • The components where we performed losses on sale and closure of businesses. of management override full or specific audit procedures accounted • Disclosure of impact of adoption of for 88% of profit before taxation, 89% of IFRS 16 Leases revenue and 88% of total assets.

Annual Report and Accounts 2019 Associated British Foods plc 108 Annual Report and Accounts 20192019 AssociatedAssociated British British Foods Foods plc plc 111 111

Independent Auditor’s Report to the members of Associated British Foods plc

Our key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Key observations communicated to Risk Our response to the risk the Audit committee Assessment of the carrying value We understood the methodology applied by management in We concluded that the of goodwill, other intangible assets performing its impairment test for each of the relevant CGUs £65 million impairment and property, plant and equipment and walked through the controls over the process. charge to the property, (£7,450 million, 2018: £7,379 million) plant and equipment of UK For CGUs where there were indicators of impairment or low The group has a significant value of goodwill, Bakeries, recorded in the levels of headroom, including the five CGUs described, we other intangible assets and property, plant and first half of the year, was performed detailed testing to critically assess and corroborate equipment that has arisen from acquisitions and appropriately recognised the key inputs to the valuations, including: capital investments. The AB Mauri (£654 million), and that no further Azucarera (£273 million), Australian meat • analysing the historical accuracy of budgets to actual results impairments were required. (£170 million), UK Bakeries (£137 million) to determine whether forecast cash flows are reliable based For other CGUs, we and China Sugar (£81 million) businesses all on past experience; concluded that no operate in challenging trading environments. • for AB Mauri and Australian meat, visiting factories and impairments were required analysing historical data to better understand the operations AB Mauri’s profitability has been impacted by at the year end, based on and to assess the ability to achieve forecast volume growth, competitive pricing pressures in some of its the results of our work. operational improvements and production yields; businesses compounded by macro-economic • for Azucarera and China Sugar, performing current market Of the group’s assets, the conditions, including high inflation rates and and historical analysis to assess future sugar price and cost portion relating to the AB currency devaluation. assumptions, with support from our valuation specialists Mauri, Azucarera, Australian Low sugar prices contributed to a significant on future sugar prices; meat, UK Bakeries and reduction in profitability at Azucarera and, • for UK Bakeries, where the recoverable amount is based on China Sugar businesses combined with poorer crop quality, fair value less costs of disposal, considering the evidence remains very sensitive in China Sugar. available as to whether the recoverable amount represents to reasonably possible an appropriate estimate of a market participant’s valuation changes in key The Australian meat and UK Bakeries of the CGU and whether the impairment of £65 million assumptions. Management businesses operate in environments of recognised in the year was appropriate; describes these sensitivities significant retailer pressure on price and • in conjunction with our valuation specialists, assessing the appropriately in the competitor activity. discount rate used by obtaining the underlying data used intangible assets and There is a risk that these cash generating units in the calculation and benchmarking it against market data property, plant and (‘CGUs’) may not achieve the anticipated and comparable organisations; and equipment notes to the business performance to support their carrying • validating the growth rates assumed by comparing them group financial statements, value, or that the estimated fair value of the to economic and industry forecasts. in accordance with IAS 36. CGUs may not support their carrying value. For all CGUs we calculated the degree to which the key This could lead to an impairment charge that inputs and assumptions would need to fluctuate before an has not been recognised by management. impairment was triggered and considered the likelihood of this Significant judgement is required in forecasting occurring. We performed our own sensitivities on the group’s the future cash flows of each CGU, together forecasts and, for Azucarera and China Sugar, performed our with the rate at which they are discounted, own independent assessment of future sugar price, beet cost or in estimating a CGU’s fair value less costs and area assumptions. We then determined whether adequate of disposal. headroom remained using these sensitivities and our independent assessment. Refer to the Audit committee report (page 80); accounting policies (page 127); accounting We assessed the disclosures in notes 8 and 9 against the estimates and judgements (page 131); and requirements of IAS 36 Impairment of Assets, in particular notes 8 and 9 to the consolidated financial in respect of the requirement to disclose further sensitivities statements (pages 139 to 142). for CGUs where a reasonably possible change in a key assumption would cause an impairment. For the AB Mauri CGU, the audit procedures performed to address this risk were performed by the group audit team. The Australian meat, UK Bakeries, Azucarera and China Sugar goodwill, operating intangible assets and property, plant and equipment were subject to full scope audit procedures by the respective component teams, and reviewed by the group team.

112 Associated British Foods plc Annual Report and Accounts 2019 Governance Independent Auditor’s Report to the members of Associated British Foods plc

Our key audit matters Key observations Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial communicated to Risk Our response to the risk the Audit committee statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the Tax provisions (included within the income We understood: We consider the amounts tax liability of £163m, 2018: £160m) provided to be within an allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the • the group’s process for determining the completeness and The global nature of the group’s operations acceptable range in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion measurement of provisions for tax; results in complexities in the payment of and context of the group’s on these matters. • the methodology for the calculation of the tax charge; and accounting for tax. overall tax exposures. • management’s controls over tax reporting. Key observations Management applies judgement in assessing communicated to The group audit team, including tax specialists, evaluated tax exposures in each jurisdiction, many of Risk Our response to the risk the Audit committee the tax positions taken by management in each significant which require interpretation of local tax laws. Assessment of the carrying value We understood the methodology applied by management in We concluded that the jurisdiction in the context of local tax law, correspondence of goodwill, other intangible assets performing its impairment test for each of the relevant CGUs £65 million impairment Given this judgement, there is a risk that tax with tax authorities and the status of any tax audits. Our work and property, plant and equipment and walked through the controls over the process. charge to the property, provisions are misstated. utilised additional support from country tax specialists in (£7,450 million, 2018: £7,379 million) plant and equipment of UK Australia, Germany, Ireland, Spain and the USA. For CGUs where there were indicators of impairment or low Refer to the Audit committee report (page 80); The group has a significant value of goodwill, Bakeries, recorded in the levels of headroom, including the five CGUs described, we accounting policies (page 126); accounting We assessed the group’s transfer pricing judgements, other intangible assets and property, plant and first half of the year, was performed detailed testing to critically assess and corroborate estimates and judgements (page 131); and considering the way in which we observed the group’s equipment that has arisen from acquisitions and appropriately recognised the key inputs to the valuations, including: note 5 to the consolidated financial statements businesses operating and the correspondence and capital investments. The AB Mauri (£654 million), and that no further (page 137). agreements reached with tax authorities. Azucarera (£273 million), Australian meat • analysing the historical accuracy of budgets to actual results impairments were required. (£170 million), UK Bakeries (£137 million) to determine whether forecast cash flows are reliable based Revenue recognition, including the risk of We understood each business’s revenue recognition policies Based on the procedures For other CGUs, we and China Sugar (£81 million) businesses all on past experience; management override (£15,824m, 2018: and how they are applied, including the relevant controls, and performed, including concluded that no operate in challenging trading environments. • for AB Mauri and Australian meat, visiting factories and £15,574m) tested controls over revenue recognition where appropriate. those in respect of trade impairments were required There continues to be pressure on the group to deductions and rebates analysing historical data to better understand the operations We discussed key contractual arrangements with AB Mauri’s profitability has been impacted by at the year end, based on meet expectations and targets. Management in the Grocery segment, and to assess the ability to achieve forecast volume growth, management and obtained relevant documentation, including competitive pricing pressures in some of its the results of our work. reward and incentive schemes, based on we did not identify any operational improvements and production yields; in respect of rebate and returns arrangements. Where rebate businesses compounded by macro-economic achieving profit targets and working capital as a evidence of material • for Azucarera and China Sugar, performing current market Of the group’s assets, the arrangements existed, on a sample basis we obtained third conditions, including high inflation rates and percentage of revenue targets, may also place misstatement in the and historical analysis to assess future sugar price and cost portion relating to the AB party confirmations or performed appropriate alternative currency devaluation. pressure to manipulate revenue recognition. revenue recognised assumptions, with support from our valuation specialists Mauri, Azucarera, Australian procedures, including review of contracts and recalculation of in the year. Low sugar prices contributed to a significant on future sugar prices; meat, UK Bakeries and The majority of the group’s sales arrangements rebates. We also performed hindsight analysis over changes reduction in profitability at Azucarera and, • for UK Bakeries, where the recoverable amount is based on China Sugar businesses are generally straightforward, being on a point of to prior period rebate estimates to challenge the assumptions combined with poorer crop quality, fair value less costs of disposal, considering the evidence remains very sensitive sale basis and requiring little judgement to be made, including assessing the estimates for evidence of in China Sugar. available as to whether the recoverable amount represents to reasonably possible exercised. However, in the Grocery segment, management bias. an appropriate estimate of a market participant’s valuation changes in key management estimates the level of trade The Australian meat and UK Bakeries For a number of businesses, including Primark, as part of of the CGU and whether the impairment of £65 million assumptions. Management promotions and rebates to be applied to its sales businesses operate in environments of our overall revenue recognition testing we used data analysis recognised in the year was appropriate; describes these sensitivities to customers, adding a level of judgement to significant retailer pressure on price and tools on 100% of revenue transactions in the year to test the • in conjunction with our valuation specialists, assessing the appropriately in the revenue recognition. Approximately 3% (2018: competitor activity. correlation of revenue to cash receipts to verify the occurrence discount rate used by obtaining the underlying data used intangible assets and 3%) of the group’s gross revenue is subject of revenue. This provided us with a high level of assurance There is a risk that these cash generating units in the calculation and benchmarking it against market data property, plant and to such arrangements. (‘CGUs’) may not achieve the anticipated and comparable organisations; and equipment notes to the over £13.6 billion (86%) (2018: £12.3 billion (79%)) of revenue business performance to support their carrying • validating the growth rates assumed by comparing them group financial statements, There is a risk that management may override recognised by the group. For those in-scope businesses where value, or that the estimated fair value of the to economic and industry forecasts. in accordance with IAS 36. controls to intentionally misstate revenue we did not use data analysis tools, we performed appropriate CGUs may not support their carrying value. transactions, either through the judgements alternative procedures over revenue recognition. For all CGUs we calculated the degree to which the key made in estimating rebates in the Grocery This could lead to an impairment charge that We performed cut-off testing for a sample of revenue inputs and assumptions would need to fluctuate before an segment or by recording fictitious revenue has not been recognised by management. transactions around the period end date, to check that they impairment was triggered and considered the likelihood of this transactions across the business. Significant judgement is required in forecasting occurring. We performed our own sensitivities on the group’s were recognised in the appropriate period. Refer to the accounting policies (page 125); and the future cash flows of each CGU, together forecasts and, for Azucarera and China Sugar, performed our We performed other audit procedures specifically designed to note 1 to the consolidated financial statements with the rate at which they are discounted, own independent assessment of future sugar price, beet cost address the risk of management override of controls including (pages 132 to 134). or in estimating a CGU’s fair value less costs and area assumptions. We then determined whether adequate journal entry testing, applying particular focus to the timing of disposal. headroom remained using these sensitivities and our of revenue transactions. independent assessment. Refer to the Audit committee report (page 80); We assessed the disclosures against the requirements of accounting policies (page 127); accounting We assessed the disclosures in notes 8 and 9 against the IFRS 15 Revenue from contracts with customers, in particular estimates and judgements (page 131); and requirements of IAS 36 Impairment of Assets, in particular in respect of the requirements to disclosure rebate and returns notes 8 and 9 to the consolidated financial in respect of the requirement to disclose further sensitivities arrangements and the impact of the first year of adoption. statements (pages 139 to 142). for CGUs where a reasonably possible change in a key assumption would cause an impairment. We performed full and specific scope audit procedures over this risk area in 93 locations, which covered 89% of the For the AB Mauri CGU, the audit procedures performed to group’s revenue. address this risk were performed by the group audit team. The Australian meat, UK Bakeries, Azucarera and China Sugar The audit procedures performed to address this risk were goodwill, operating intangible assets and property, plant and performed by component teams and reviewed by the equipment were subject to full scope audit procedures by group team. the respective component teams, and reviewed by the group team.

112 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 113 Independent Auditor’s Report to the members of Associated British Foods plc

Key observations communicated to Risk Our response to the risk the Audit committee Disclosure of impact of adoption of We evaluated the design and implementation of key controls We are satisfied that the IFRS 16 Leases used in estimating and disclosing the impact of adoption estimated impact of IFRS The group has a high value and volume of IFRS 16. 16 has been disclosed of leases, with the majority of lease value appropriately in the financial We performed the following audit procedures, with a particular represented by retail property leases held statements and the focus on Primark’s retail property leases, given that the by Primark. The estimation of the impact judgements applied by majority of the lease value is represented by this business: of the adoption of IFRS 16 Leases is complex management are in and requires a number of judgements, • considered the accounting judgements applied by accordance with IFRS 16. the most significant of which relate to: management for compliance with IFRS 16, with particular reference to assumptions on lease term; • determination of the lease term; • understood and walked through management’s model • determination of the incremental borrowing used to estimate the right-of-use asset and lease liability rate (‘IBR’) where the interest rate in the disclosures; lease cannot be readily determined; and • tested a sample of leases by corroborating key data inputs • identification of lease arrangements within to underlying source data (original lease agreements, side the scope of IFRS 16. agreements, calculations prepared by management) to The diversity of ABF’s global operations verify the accuracy of those data inputs; increases the risk of lease data used to estimate • for the same sample we independently recalculated the the transition adjustment being inaccurate and opening right-of-use asset and lease liability, testing the incomplete. There is also a risk of incorrect arithmetical accuracy and integrity of management’s calculation of accounting entries being recorded model; and in the model used by management. • with input from our treasury specialists, we tested the methodology used to determine the IBRs with reference Refer to the audit committee report (page 81) to lease terms, country risk and credit ratings. and accounting policies (page 130). We tested the completeness of the disclosures by comparing the IFRS 16 lease population with the group’s current operating lease population. We also evaluated management’s judgements around significant service arrangements which may constitute a lease under IFRS 16. The audit procedures were designed and led by the group audit team, with support from component teams whose work was reviewed by the group audit team.

The key audit matters set out in the table above are consistent with those reported in 2018, with the exception of the addition of ‘Disclosure of impact of adoption of IFRS 16 Leases’ ahead of the adoption of this new accounting standard in 2020.

114 Associated British Foods plc Annual Report and Accounts 2019 Governance Independent Auditor’s Report to the members of Associated British Foods plc

Key observations The scope of our audit communicated to Risk Our response to the risk the Audit committee Tailoring the scope Involvement with component teams Our assessment of audit risk, our evaluation of materiality In establishing our overall approach Disclosure of impact of adoption of We evaluated the design and implementation of key controls We are satisfied that the Profit before taxation IFRS 16 Leases used in estimating and disclosing the impact of adoption estimated impact of IFRS and our allocation of performance materiality determine to the group audit, we determined The group has a high value and volume of IFRS 16. 16 has been disclosed our audit scope for each entity within the group. Taken the type of work that needed to of leases, with the majority of lease value appropriately in the financial together, this enables us to form an opinion on the be undertaken at each of the We performed the following audit procedures, with a particular represented by retail property leases held statements and the consolidated financial statements. We take into account components, as the group audit team, focus on Primark’s retail property leases, given that the by Primark. The estimation of the impact judgements applied by the level of revenue and profit before taxation, risk profile or by component auditors from other majority of the lease value is represented by this business: of the adoption of IFRS 16 Leases is complex management are in (including country risk, controls and internal audit findings EY global network firms or by other and requires a number of judgements, • considered the accounting judgements applied by accordance with IFRS 16. and the extent of changes in management, systems and auditors operating under our the most significant of which relate to: management for compliance with IFRS 16, with particular processes and the business environment) and other known instruction. Of the 130 full scope reference to assumptions on lease term; factors when assessing the level of work to be performed components, audit procedures were • determination of the lease term; • understood and walked through management’s model at each entity. performed on 71 of these directly • determination of the incremental borrowing by the group audit team and 59 by used to estimate the right-of-use asset and lease liability In assessing the risk of material misstatement to the group rate (‘IBR’) where the interest rate in the component audit teams. For the disclosures; financial statements and to achieve adequate quantitative lease cannot be readily determined; and 44 specific scope components, • tested a sample of leases by corroborating key data inputs coverage of significant accounts in the financial statements, • identification of lease arrangements within Full scope components 67% where the work was performed by to underlying source data (original lease agreements, side of the 634 reporting components of the group, we selected the scope of IFRS 16. Specific scope components 21% component auditors, we determined agreements, calculations prepared by management) to 174 components, which represent the principal business Other procedures 12% the appropriate level of involvement to The diversity of ABF’s global operations verify the accuracy of those data inputs; units within the group. increases the risk of lease data used to estimate • for the same sample we independently recalculated the enable us to determine that sufficient the transition adjustment being inaccurate and opening right-of-use asset and lease liability, testing the Of the 174 components selected, we performed an audit audit evidence had been obtained as incomplete. There is also a risk of incorrect arithmetical accuracy and integrity of management’s of the complete financial information of 130 components Revenue a basis for our opinion on the group calculation of accounting entries being recorded model; and (‘full scope components’) which were selected based as a whole. on their size or risk characteristics. For the remaining in the model used by management. • with input from our treasury specialists, we tested the During the period the Senior Statutory 44 components (‘specific scope components’), we methodology used to determine the IBRs with reference Auditor or other members of the Refer to the audit committee report (page 81) performed audit procedures on specific accounts within that to lease terms, country risk and credit ratings. group audit team visited 34 full and and accounting policies (page 130). component that we considered had the potential for the specific components in Australia, We tested the completeness of the disclosures by comparing greatest impact on the significant accounts in the financial China, Ireland, Italy, India, Mexico, the IFRS 16 lease population with the group’s current statements either because of the size of these accounts New Zealand, South Africa, Spain, operating lease population. We also evaluated management’s or their risk profile. judgements around significant service arrangements which Thailand, the UK and the US. The reporting components where we performed full and may constitute a lease under IFRS 16. These visits involved meeting with specific scope procedures accounted for 88% of the group’s our component team to discuss and The audit procedures were designed and led by the group profit before taxation (2018: 90%), 89% of the group’s direct its audit approach, reviewing audit team, with support from component teams whose work revenue (2018: 90%) and 90% of the group’s total assets key working papers and understanding was reviewed by the group audit team. (2018: 89%). For the current period, the full scope Full scope components the significant audit findings in components contributed 67% of the group’s profit before Specific scope components response to the risk areas including taxation (2018: 74%), 78% of the group’s revenue (2018: Other procedures The key audit matters set out in the table above are consistent with those reported in 2018, with the exception of the addition asset impairment, tax provisions and 79%) and 78% of the group’s total assets (2018: 79%). of ‘Disclosure of impact of adoption of IFRS 16 Leases’ ahead of the adoption of this new accounting standard in 2020. revenue recognition, holding meetings The specific scope components contributed 21% of the with local management, undertaking group’s profit before taxation (2018: 16%), 11% of the Total assets factory tours and obtaining updates on group’s revenue (2018: 11%) and 12% of the group’s total IT systems implementations and local assets (2018: 10%). The audit scope of these components regulatory matters including tax, may not have included testing of all significant accounts of pensions and legal. The group audit the component but will have contributed to the coverage team interacted regularly with the of significant accounts tested for the group. component teams where appropriate Of the remaining 460 components (2018: 464) that together during various stages of the audit, represent 12% of the group’s profit before taxation (2018: reviewed key working papers and 10%), none are individually greater than 1% of the group’s were responsible for the scope profit before taxation. For these components, we performed and direction of the audit process. other procedures, including analytical review, testing of This, together with the additional consolidation journals and intercompany eliminations and procedures performed at group level, foreign currency translation recalculations to respond to gave us appropriate evidence any potential risks of material misstatement to the group Full scope components for our opinion on the group financial statements. Specific scope components financial statements. Other procedures The charts illustrate the coverage obtained from the work performed by our audit teams.

114 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 115 Independent Auditor’s Report to the members of Associated British Foods plc

Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality – ‘The magnitude of an omission or misstatement that, ndividuallyi or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.’ We determined materiality for the group to be £66 million (2018: £64 million), which is 5% of profit before taxation adjusted for exceptional items and certain significant profits less losses on sale and closure of businesses. Exceptional items were £65 million of impairment charges and £14 million of Guaranteed Minimum Pension charges. The significant profits less losses on sale and closure of businesses result from AB Mauri signing an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International. As a consequence, the businesses have been classified as a disposal group and a loss of £88 million was recorded. We consider that this basis for assessing materiality provides the most relevant performance measure to the stakeholders of the group, as exceptional items and certain significant profits less losses on sale and closure of businesses were non-recurring, sufficiently material and not related to the ongoing trading of the group. There were no equivalent items in 2018. Performance materiality – ‘The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.’ On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was that performance materiality was 75% of our planning materiality, namely £49 million (2018: 75% of planning materiality, being £48 million). Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement at that component. In the current period, the range of performance materiality allocated to components was £1 million to £27 million (2018: £1 million to £22 million). Reporting threshold – ‘An amount below which identified misstatements are considered as being clearly trivial.’ We agreed with the Audit committee that we would report to them all uncorrected audit differences in excess of £1 million (2018: £1 million), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report and accounts set out on pages 1 to 110, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:

• Fair, balanced and understandable, set out on page 110 – the statement given by the directors that they consider the annual report and accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or • Audit committee reporting, set out on pages 79 to 82 – the section describing the work of the Audit committee does not appropriately address matters communicated by us to the Audit committee; or • Directors’ statement of compliance with the UK Corporate Governance Code, set out on page 70 – the parts of the directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

116 Associated British Foods plc Annual Report and Accounts 2019 Governance Independent Auditor’s Report to the members of Associated British Foods plc

Our application of materiality Opinions on other matters prescribed by the Companies Act 2006 We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the on the audit and in forming our audit opinion. Companies Act 2006. Materiality – ‘The magnitude of an omission or misstatement that, ndividuallyi or in the aggregate, could reasonably be In our opinion, based on the work undertaken in the course of the audit: expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for the information given in the strategic report and the directors’ report for the financial year for which the financial statements determining the nature and extent of our audit procedures.’ • are prepared is consistent with the financial statements; and We determined materiality for the group to be £66 million (2018: £64 million), which is 5% of profit before taxation adjusted • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. for exceptional items and certain significant profits less losses on sale and closure of businesses. Exceptional items were £65 million of impairment charges and £14 million of Guaranteed Minimum Pension charges. The significant profits less losses Matters on which we are required to report by exception on sale and closure of businesses result from AB Mauri signing an agreement to form a yeast and bakery ingredients joint In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the venture in China with Wilmar International. As a consequence, the businesses have been classified as a disposal group and a course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. loss of £88 million was recorded. We consider that this basis for assessing materiality provides the most relevant performance We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report measure to the stakeholders of the group, as exceptional items and certain significant profits less losses on sale and closure to you if, in our opinion: of businesses were non-recurring, sufficiently material and not related to the ongoing trading of the group. There were no equivalent items in 2018. • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or Performance materiality – ‘The application of materiality at the individual account or balance level. It is set at an amount • the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements with the accounting records and returns; or exceeds materiality.’ • certain disclosures of directors’ remuneration specified by law are not made; or On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement • we have not received all the information and explanations we require for our audit. was that performance materiality was 75% of our planning materiality, namely £49 million (2018: 75% of planning materiality, Responsibilities of directors being £48 million). As explained more fully in the directors’ responsibilities statement, set out on page 110, the directors are responsible for the Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, based on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement whether due to fraud or error. at that component. In the current period, the range of performance materiality allocated to components was £1 million to In preparing the financial statements, the directors are responsible for assessing the group and Company’s ability to continue as £27 million (2018: £1 million to £22 million). a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting Reporting threshold – ‘An amount below which identified misstatements are considered as being clearly trivial.’ unless the directors either intend to liquidate the group or the Company or to cease operations, or have no realistic alternative but to do so. We agreed with the Audit committee that we would report to them all uncorrected audit differences in excess of £1 million (2018: £1 million), which is 2% of planning materiality, as well as differences below that threshold that, in our view, warranted Auditor’s responsibilities for the audit of the financial statements reporting on qualitative grounds. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a of other relevant qualitative considerations in forming our opinion. material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually Other information or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of The other information comprises the information included in the annual report and accounts set out on pages 1 to 110, other these financial statements. than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial Our opinion on the financial statements does not cover the other information and, accordingly, except to the extent otherwise statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement explicitly stated in this report, we do not express any form of assurance conclusion thereon. due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, those charged with governance of the entity and management. consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material Our approach was as follows: misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material • We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that misstatement of the other information. If, based on the work we have performed, we conclude that there is a material the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that misstatement of the other information, we are required to report that fact. relate to the reporting framework (IFRSs as adopted by the EU, United Kingdom Generally Accepted Accounting Practice, the We have nothing to report in this regard. Companies Act 2006 and the UK Corporate Governance Code) and the relevant tax laws and regulations in the jurisdictions in which the group operates. In addition, we concluded that there are certain significant laws and regulations which may In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the have an effect on the determination of the amounts and disclosures in the financial statements being the Listing Rules of the other information and to report as uncorrected material misstatements of the other information where we conclude that those UK Listing Authority, and those laws and regulations relating to health and safety, employee matters, food standards and items meet the following conditions: food safety. • We understood how the group is complying with those frameworks by making enquiries of management, internal audit, • Fair, balanced and understandable, set out on page 110 – the statement given by the directors that they consider the those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through annual report and accounts taken as a whole is fair, balanced and understandable and provides the information necessary for our review of board minutes, papers provided to the Audit committee and correspondence received from regulatory bodies. shareholders to assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or • Audit committee reporting, set out on pages 79 to 82 – the section describing the work of the Audit committee does not appropriately address matters communicated by us to the Audit committee; or • Directors’ statement of compliance with the UK Corporate Governance Code, set out on page 70 – the parts of the directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

116 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 117 Independent Auditor’s Report to the members of Associated British Foods plc

• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur, by meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud. We also considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of analysts. We considered the programs and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud or error. • Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in the paragraphs above. Our procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel, group management, internal audit, divisional management and all full and specific scope management; and focused testing, as referred to in the key audit matters section above. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address • Following the recommendation of the Audit committee, we were appointed as auditor by the shareholders and signed an engagement letter on 16 April 2019. We were appointed by the Company at the AGM on 7 December 2018 to audit the financial statements for the 52 weeks ending 14 September 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is four years, from the 53 weeks ended 17 September 2016 until the 52 weeks ended 14 September 2019. • The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the Company and we remain independent of the group and the Company in conducting the audit. • The audit opinion is consistent with the additional report to the Audit committee. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Andrew Walton (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 5 November 2019

118 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Consolidated income statement for the 52 weeks ended 14 September 2019

2019 2018 Continuing operations Note £m £m

Revenue 1 15,824 15,574 Operating costs before exceptional items 2 (14,524) (14,290) Exceptional items 2 (79) – 1,221 1,284 Share of profit after tax from joint ventures and associates 10 57 54 Profits less losses on disposal of non-current assets 4 6 Operating profit 1,282 1,344

Adjusted operating profit 1 1,421 1,404 Profits less losses on disposal of non-current assets 4 6 Amortisation of non-operating intangibles 8 (47) (41) Acquired inventory fair value adjustments 2 (15) (23) Transaction costs 2 (2) (2) Exceptional items 2 (79) –

Profits less losses on sale and closure of businesses 22 (94) (34) Profit before interest 1,188 1,310 Finance income 4 15 15 Finance expense 4 (42) (50) Other financial income 4 12 4 Profit before taxation 1,173 1,279

Adjusted profit before taxation 1,406 1,373 Profits less losses on disposal of non-current assets 4 6 Amortisation of non-operating intangibles 8 (47) (41) Acquired inventory fair value adjustments 2 (15) (23) Transaction costs 2 (2) (2) Exceptional items 2 (79) – Profits less losses on sale and closure of businesses 22 (94) (34)

Taxation – UK (excluding tax on exceptional items) (75) (105) – UK (on exceptional items) 12 – – Overseas (214) (152) 5 (277) (257) Profit for the period 896 1,022

Attributable to Equity shareholders 878 1,007 Non-controlling interests 18 15 Profit for the period 896 1,022

Basic and diluted earnings per ordinary share (pence) 7 111.1 127.5 Dividends per share paid and proposed for the period (pence) 6 46.35 45.0

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 119 Consolidated statement of comprehensive income for the 52 weeks ended 14 September 2019

2019 2018 £m £m Profit for the period recognised in the income statement 896 1,022

Other comprehensive income Remeasurements of defined benefit schemes (407) 310 Deferred tax associated with defined benefit schemes 68 (53) Current tax associated with defined benefit schemes 2 – Items that will not be reclassified to profit or loss (337) 257

Effect of movements in foreign exchange 43 (85) Net gain/(loss) on hedge of net investment in foreign subsidiaries 3 (10) Deferred tax associated with movements in foreign exchange – 1 Reclassification adjustment for movements in foreign exchange on subsidiaries disposed (3) – Movement in cash flow hedging position (29) 55 Deferred tax associated with movement in cash flow hedging position 7 (12) Share of other comprehensive income of joint ventures and associates 4 – Effect of hyperinflationary economies 38 – Deferred tax associated with hyperinflationary economies (2) – Items that are or may be subsequently reclassified to profit or loss 61 (51)

Other comprehensive income for the period (276) 206

Total comprehensive income for the period 620 1,228

Attributable to Equity shareholders 601 1,215 Non-controlling interests 19 13 Total comprehensive income for the period 620 1,228

120 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Consolidated statement of comprehensive income Consolidated balance sheet for the 52 weeks ended 14 September 2019 at 14 September 2019

2019 2018 2019 2018 £m £m Note £m £m

Profit for the period recognised in the income statement 896 1,022 Non-current assets Intangible assets 8 1,681 1,632 Other comprehensive income Property, plant and equipment 9 5,769 5,747 Remeasurements of defined benefit schemes (407) 310 Investments in joint ventures 10 225 219 Deferred tax associated with defined benefit schemes 68 (53) Investments in associates 10 50 47 Current tax associated with defined benefit schemes 2 – Employee benefits assets 11 228 579 Deferred tax assets 133 Items that will not be reclassified to profit or loss (337) 257 12 160 Other receivables 13 51 50 Effect of movements in foreign exchange 43 (85) Total non-current assets 8,164 8,407 Net gain/(loss) on hedge of net investment in foreign subsidiaries 3 (10) Deferred tax associated with movements in foreign exchange – 1 Current assets Reclassification adjustment for movements in foreign exchange on subsidiaries disposed (3) – Assets classified as held for sale 14 43 – Movement in cash flow hedging position (29) 55 Inventories 15 2,386 2,187 Deferred tax associated with movement in cash flow hedging position 7 (12) Biological assets 16 84 84 Share of other comprehensive income of joint ventures and associates 4 – Trade and other receivables 13 1,436 1,436 Effect of hyperinflationary economies 38 – Derivative assets 25 99 132 Deferred tax associated with hyperinflationary economies (2) – Current asset investments 24 29 30 Items that are or may be subsequently reclassified to profit or loss 61 (51) Income tax 24 54 Cash and cash equivalents 17 1,495 1,362 Other comprehensive income for the period (276) 206 Total current assets 5,596 5,285 Total assets 13,760 13,692 Total comprehensive income for the period 620 1,228 Current liabilities Attributable to Liabilities classified as held for sale 14 (6) – Equity shareholders 601 1,215 Loans and overdrafts 18 (227) (419) Non-controlling interests 19 13 Trade and other payables 19 (2,556) (2,529) Total comprehensive income for the period 620 1,228 Derivative liabilities 25 (52) (52) Income tax (163) (160) Provisions 20 (64) (88) Total current liabilities (3,068) (3,248)

Non-current liabilities Loans 18 (361) (359) Other payables 19 (271) (269) Provisions 20 (54) (52) Deferred tax liabilities 12 (261) (324) Employee benefits liabilities 11 (195) (144) Total non-current liabilities (1,142) (1,148) Total liabilities (4,210) (4,396) Net assets 9,550 9,296

Equity Issued capital 21 45 45 Other reserves 21 175 175 Translation reserve 21 409 363 Hedging reserve 21 (9) 13 Retained earnings 8,832 8,615 Total equity attributable to equity shareholders 9,452 9,211 Non-controlling interests 98 85 Total equity 9,550 9,296 The financial statements on pages 119 to 175 were approved by the board of directors on 5 November 2019 and were signed on its behalf by:

Michael McLintock John Bason Chairman Finance Director

120 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 121 Consolidated cash flow statement for the 52 weeks ended 14 September 2019

2019 2018 £m £m Cash flow from operating activities Profit before taxation 1,173 1,279 Profits less losses on disposal of non-current assets (4) (6) Profits less losses on sale and closure of businesses 94 34 Transaction costs 2 2 Finance income (15) (15) Finance expense 42 50 Other financial income (12) (4) Share of profit after tax from joint ventures and associates (57) (54) Amortisation 68 65 Depreciation 544 509 Exceptional items 79 – Acquired inventory fair value adjustments 15 23 Effect of hyperinflationary economies 6 – Net change in the fair value of current biological assets – 5 Share-based payment expense 22 19 Pension costs less contributions (10) 4 Increase in inventories (202) (35) Decrease/(increase) in receivables 18 (99) Increase/(decrease) in payables 44 (19) Purchases less sales of current biological assets (1) (1) Decrease in provisions (28) (30) Cash generated from operations 1,778 1,727 Income taxes paid (269) (297) Net cash from operating activities 1,509 1,430

Cash flows from investing activities Dividends received from joint ventures and associates 52 42 Purchase of property, plant and equipment (680) (787) Purchase of intangibles (57) (81) Sale of property, plant and equipment 12 23 Purchase of subsidiaries, joint ventures and associates (84) (208) Sale of subsidiaries, joint ventures and associates 6 1 Interest received 20 10 Net cash from investing activities (731) (1,000)

Cash flows from financing activities Dividends paid to non-controlling interests (4) (4) Dividends paid to equity shareholders (358) (327) Interest paid (43) (50) Decrease in short-term loans (263) (111) Increase in long-term loans 2 19 Decrease/(increase) in current asset investments 1 (30) Purchase of shares in subsidiary undertaking from non-controlling interests (1) (1) Sale of shares in subsidiary undertakings to non-controlling interests – 1 Movements from changes in own shares held (25) (30) Net cash from financing activities (691) (533)

Net increase/(decrease) in cash and cash equivalents 87 (103) Cash and cash equivalents at the beginning of the period 1,271 1,386 Effect of movements in foreign exchange – (12) Cash and cash equivalents at the end of the period 1,358 1,271

122 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Consolidated cash flow statement Consolidated statement of changes in equity for the 52 weeks ended 14 September 2019 for the 52 weeks ended 14 September 2019

2019 2018 Attributable to equity shareholders £m £m Non- Cash flow from operating activities Issued Other Translation Hedging Retained controlling Total capital reserves reserve reserve earnings interests equity Total Profit before taxation 1,173 1,279 Note £m £m £m £m £m £m £m £m Profits less losses on disposal of non-current assets (4) (6) Balance as at 16 September 2017 45 175 456 (31) 7,694 8,339 73 8,412 Profits less losses on sale and closure of businesses 94 34 Transaction costs 2 2 Total comprehensive income Finance income (15) (15) Profit for the period recognised in the income statement – – – – 1,007 1,007 15 1,022 Finance expense 42 50 Remeasurements of defined benefit schemes – – – – 310 310 – 310 Other financial income (12) (4) Deferred tax associated with defined benefit schemes – – – – (53) (53) – (53) Share of profit after tax from joint ventures and associates (57) (54) Items that will not be reclassified to profit or loss – – – – 257 257 – 257 Amortisation 68 65

Depreciation 544 509 Effect of movements in foreign exchange – – (83) – – (83) (2) (85)

Exceptional items 79 – Net loss on hedge of net investment in foreign subsidiaries – – (10) – – (10) – (10)

Acquired inventory fair value adjustments 15 23 Deferred tax associated with movements in foreign exchange – – 1 – – 1 – 1

Effect of hyperinflationary economies 6 – Movement in cash flow hedging position – – (1) 56 – 55 – 55 Net change in the fair value of current biological assets – 5 Deferred tax associated with movement in cash flow

Share-based payment expense 22 19 hedging position – – – (12) – (12) – (12) Pension costs less contributions (10) 4 Items that are or may be subsequently reclassified to

Increase in inventories (202) (35) profit or loss – – (93) 44 – (49) (2) (51)

Decrease/(increase) in receivables 18 (99) Other comprehensive income – – (93) 44 257 208 (2) 206

Increase/(decrease) in payables 44 (19) Total comprehensive income – – (93) 44 1,264 1,215 13 1,228 Purchases less sales of current biological assets (1) (1) Decrease in provisions (28) (30) Transactions with owners Cash generated from operations 1,778 1,727 Dividends paid to equity shareholders 6 – – – – (327) (327) – (327) Income taxes paid (269) (297) Net movement in own shares held – – – – (11) (11) – (11) Net cash from operating activities 1,509 1,430 Deferred tax associated with share-based payments – – – – (1) (1) – (1) Dividends paid to non-controlling interests – – – – – – (5) (5) Cash flows from investing activities Acquisition and disposal of non-controlling interests – – – – (4) (4) 4 – Dividends received from joint ventures and associates 52 42 Total transactions with owners – – – – (343) (343) (1) (344) Purchase of property, plant and equipment (680) (787) Balance as at 15 September 2018 45 175 363 13 8,615 9,211 85 9,296 Purchase of intangibles (57) (81) Total comprehensive income Sale of property, plant and equipment 12 23 Profit for the period recognised in the income statement – – – – 878 878 18 896 Purchase of subsidiaries, joint ventures and associates (84) (208) Sale of subsidiaries, joint ventures and associates 6 1 Remeasurements of defined benefit schemes – – – – (407) (407) – (407) Interest received 20 10 Deferred tax associated with defined benefit schemes – – – – 68 68 – 68 Net cash from investing activities (731) (1,000) Current tax associated with defined benefit schemes – – – – 2 2 – 2 Items that will not be reclassified to profit or loss – – – – (337) (337) – (337) Cash flows from financing activities Dividends paid to non-controlling interests (4) (4) Effect of movements in foreign exchange – – 42 – – 42 1 43 Dividends paid to equity shareholders (358) (327) Net gain on hedge of net investment in foreign subsidiaries – – 3 – – 3 – 3 Interest paid (43) (50) Movements in foreign exchange on businesses disposed – – (3) – – (3) – (3) Decrease in short-term loans (263) (111) Movement in cash flow hedging position – – – (29) – (29) – (29) Increase in long-term loans 2 19 Deferred tax associated with movement in cash flow Decrease/(increase) in current asset investments 1 (30) hedging position – – – 7 – 7 – 7 Purchase of shares in subsidiary undertaking from non-controlling interests (1) (1) Share of other comprehensive income of joint ventures Sale of shares in subsidiary undertakings to non-controlling interests – 1 and associates – – 4 – – 4 – 4 Movements from changes in own shares held (25) (30) Effect of hyperinflationary economies – – – – 38 38 – 38 Net cash from financing activities (691) (533) Deferred tax associated with hyperinflationary economies – – – – (2) (2) – (2) Items that are or may be subsequently reclassified to Net increase/(decrease) in cash and cash equivalents 87 (103) profit or loss – – 46 (22) 36 60 1 61 Cash and cash equivalents at the beginning of the period 1,271 1,386 Other comprehensive income – – 46 (22) (301) (277) 1 (276)

Effect of movements in foreign exchange – (12) Total comprehensive income – – 46 (22) 577 601 19 620 Cash and cash equivalents at the end of the period 1,358 1,271 Transactions with owners Dividends paid to equity shareholders 6 – – – – (358) (358) – (358) Net movement in own shares held – – – – (3) (3) – (3) Dividends paid to non-controlling interests – – – – – – (4) (4) Acquisition and disposal of non-controlling interests – – – – 1 1 (2) (1) Total transactions with owners – – – – (360) (360) (6) (366) Balance as at 14 September 2019 45 175 409 (9) 8,832 9,452 98 9,550

122 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 123 Significant accounting policies for the 52 weeks ended 14 September 2019

Associated British Foods plc (‘the Details of new accounting standards Changes in the group’s ownership Company’) is a company domiciled in which came into force in the year are interest in a subsidiary that do not result the United Kingdom. The consolidated set out at the end of this note. in a loss of control are accounted for financial statements of the Company within equity. The consolidated financial statements for the 52 weeks ended 14 September of the group are prepared to the All the group’s joint arrangements are 2019 comprise those of the Company Saturday nearest to 15 September. joint ventures, which are entities over and its subsidiaries (together referred to Accordingly, these financial statements whose activities the group has joint as ‘the group’) and the group’s interest have been prepared for the 52 weeks control, typically established by in joint ventures and associates. ended 14 September 2019 (2018 – 52 contractual agreement and requiring The consolidated financial statements weeks ended 15 September 2018). the venturers’ unanimous consent for were authorised for issue by the To avoid delay in the preparation of the strategic financial and operating directors on 5 November 2019. consolidated financial statements, decisions. the results of certain subsidiaries, joint The consolidated financial statements Associates are those entities in which ventures and associates are included have been prepared and approved by the the group has significant influence, being up to 31 August each year. Adjustments directors in accordance with International the power to participate in the financial are made as appropriate for significant Financial Reporting Standards as adopted and operating policy decisions of the transactions or events occurring by the EU (‘Adopted IFRS’). entity, but which does not amount to between 14 September and these control or joint control. The Company has elected to prepare other balance sheet dates. its parent company financial statements Where the group’s share of losses The group’s business activities, together under Financial Reporting Standard 101 exceeds its interest in a joint venture with the factors likely to affect its future Reduced Disclosure Framework. These or associate, the carrying amount is development, performance and position are presented on pages 176 to 182. reduced to zero and recognition of are set out in the Strategic report on further losses is discontinued except to Basis of preparation pages 1 to 49. The financial position the extent that the group has incurred The going concern basis has been of the group, its cash flows, liquidity legal or constructive obligations or made applied in these accounts. The position and borrowing facilities are payments on behalf of an investee. consolidated financial statements are described in the Financial review on presented in sterling, rounded to the pages 50 to 52. In addition, the Principal Control, joint control and significant nearest million. They are prepared on the risks and uncertainties on pages 62 to influence are generally assessed by historical cost basis except that current 66 and note 25 on pages 154 to 166 reference to equity shareholdings and biological assets and certain financial provide details of the group’s policy voting rights. instruments are stated at fair value. on managing its financial and Business combinations Assets classified as held for sale are commodity risks. On the acquisition of a business, fair stated at the lower of carrying amount The group has considerable financial values are attributed to the identifiable and fair value less costs to sell. resources, good access to debt markets, assets, liabilities and contingent liabilities The preparation of financial statements a diverse range of businesses and a acquired, reflecting conditions at the under Adopted IFRS requires wide geographic spread. It is therefore date of acquisition. Adjustments to fair management to make judgements, well-placed to manage business values include those made to bring estimates and assumptions about risks successfully. accounting policies into line with those the reported amounts of assets and of the group. Provisional fair values Basis of consolidation liabilities, income and expenses and are finalised within 12 months of the The consolidated financial statements the disclosure of contingent assets and business combination date and, where include the results of the Company and liabilities. The estimates and associated significant, are adjusted by restatement all of its subsidiaries from the date that assumptions are based on experience. of the comparative period in which the control commences to the date that Actual results may differ from these acquisition occurred. Non-controlling control ceases. The consolidated estimates. Judgements made by interests are measured at the financial statements also include the management in the application of proportionate share of the net group’s share of the after-tax results, Adopted IFRS that have a significant identifiable assets acquired. other comprehensive income and effect on the financial statements, net assets of its joint ventures and Existing equity interests in the acquiree and estimates with a significant risk associates on an equity-accounted basis are remeasured to fair value as at the of material adjustment next year, are from the point at which joint control or date of the business combination, with discussed in Accounting estimates and significant influence respectively any resulting gain or loss taken to the judgements detailed on page 131. commences, to the date that it ceases. income statement. The estimates and underlying Subsidiaries are entities controlled by Goodwill arising on a business assumptions are reviewed on a regular the Company. Control exists when the combination is the excess of the basis. Revisions to accounting estimates Company has the power, directly or remeasured carrying amount of any are recognised from the period in which indirectly, to direct the activities of an existing equity interest plus the fair the estimates are revised. entity so as to affect significantly the value of consideration payable for the The accounting policies set out returns of that entity. additional stake over the fair value of below have been applied to all the share of net identifiable assets and periods presented, except where liabilities acquired (including separately detailed otherwise. identified intangible assets), net of

124 Associated British Foods plc Annual Report and Accounts 2019

Financial statements Significant accounting policies for the 52 weeks ended 14 September 2019

Associated British Foods plc (‘the Details of new accounting standards Changes in the group’s ownership non-controlling interests. Total Exceptional items On consolidation, assets and liabilities Company’) is a company domiciled in which came into force in the year are interest in a subsidiary that do not result consideration does not include Exceptional items are defined as items of foreign operations that are the United Kingdom. The consolidated set out at the end of this note. in a loss of control are accounted for transaction costs, which are expensed of income and expenditure which are denominated in foreign currencies are financial statements of the Company within equity. as incurred. Contingent consideration is material and unusual in nature and are translated into sterling at the rate of The consolidated financial statements for the 52 weeks ended 14 September measured at fair value at the date of the considered to be of such significance exchange at the balance sheet date. of the group are prepared to the All the group’s joint arrangements are 2019 comprise those of the Company business combination, classified as a that they require separate disclosure Income and expense items are Saturday nearest to 15 September. joint ventures, which are entities over and its subsidiaries (together referred to liability or equity (usually as a liability), on the face of the income statement. translated into sterling at average Accordingly, these financial statements whose activities the group has joint as ‘the group’) and the group’s interest and subsequently accounted for in line rates of exchange. have been prepared for the 52 weeks control, typically established by Adjusted profit and earnings measures in joint ventures and associates. with that classification. Changes in ended 14 September 2019 (2018 – 52 contractual agreement and requiring Adjusted operating profit is stated Differences arising from the retranslation contingent consideration classified as a The consolidated financial statements weeks ended 15 September 2018). the venturers’ unanimous consent for before amortisation of non-operating of opening net assets of group liability resulting other than from the were authorised for issue by the To avoid delay in the preparation of the strategic financial and operating intangibles, transaction costs, companies, together with differences finalisation of provisional fair values are directors on 5 November 2019. consolidated financial statements, decisions. amortisation of fair value adjustments arising from the restatement of the accounted for in the income statement. the results of certain subsidiaries, joint made to acquired inventory, profits less net results of group companies from The consolidated financial statements Associates are those entities in which ventures and associates are included Revenue losses on disposal of non-current assets average rates to rates at the balance have been prepared and approved by the the group has significant influence, being up to 31 August each year. Adjustments Revenue represents the value of sales and exceptional items. Adjusted profit sheet date, are taken to the translation directors in accordance with International the power to participate in the financial are made as appropriate for significant made to customers after deduction of before tax is stated before amortisation reserve in equity. Financial Reporting Standards as adopted and operating policy decisions of the transactions or events occurring discounts, sales taxes and a provision for of non-operating intangibles, transaction by the EU (‘Adopted IFRS’). entity, but which does not amount to Pensions and other post- between 14 September and these returns. Discounts include sales rebates, costs, amortisation of fair value control or joint control. employment benefits The Company has elected to prepare other balance sheet dates. price discounts, customer incentives, adjustments made to acquired inventory, The group’s pension arrangements its parent company financial statements Where the group’s share of losses certain promotional activities and similar profits less losses on disposal of non- The group’s business activities, together comprise defined benefit plans, defined under Financial Reporting Standard 101 exceeds its interest in a joint venture items. Revenue does not include sales current assets, exceptional items and with the factors likely to affect its future contribution plans and other unfunded Reduced Disclosure Framework. These or associate, the carrying amount is between group companies. profits less losses on sale and closure of development, performance and position post-employment liabilities. For defined are presented on pages 176 to 182. reduced to zero and recognition of businesses. Both measures are shown are set out in the Strategic report on In the 2018 financial year, revenue is benefit plans, the amount charged in the further losses is discontinued except to on the face of the income statement. Basis of preparation pages 1 to 49. The financial position recognised when the risks and rewards income statement is the cost of benefits the extent that the group has incurred The going concern basis has been of the group, its cash flows, liquidity of the underlying products have been Adjusted earnings and adjusted earnings accruing to employees over the year, legal or constructive obligations or made applied in these accounts. The position and borrowing facilities are substantially transferred to the customer per share are shown in the notes and plus any benefit improvements granted payments on behalf of an investee. consolidated financial statements are described in the Financial review on and when it can be measured reliably. are stated before amortisation of non- to members by the group during the year. presented in sterling, rounded to the pages 50 to 52. In addition, the Principal Control, joint control and significant operating intangibles, transaction costs, It also includes net interest expense or In the 2019 financial year, revenue is nearest million. They are prepared on the risks and uncertainties on pages 62 to influence are generally assessed by amortisation of fair value adjustments income calculated by applying the liability recognised when performance historical cost basis except that current 66 and note 25 on pages 154 to 166 reference to equity shareholdings and made to acquired inventory, profits less discount rate to the net pension asset obligations are satisfied, goods are biological assets and certain financial provide details of the group’s policy voting rights. losses on disposal of non-current assets, or liability. For each plan, the difference delivered to customers and control of instruments are stated at fair value. on managing its financial and exceptional items and profits less losses between market value of assets and Business combinations goods is transferred to the buyer. Assets classified as held for sale are commodity risks. on sale and closure of businesses present value of liabilities is disclosed as On the acquisition of a business, fair stated at the lower of carrying amount In the food businesses, revenue from together with the related tax effect. an asset or liability in the balance sheet. The group has considerable financial values are attributed to the identifiable and fair value less costs to sell. the sale of goods is generally recognised resources, good access to debt markets, assets, liabilities and contingent liabilities Items as defined above which arise in Any related deferred tax (to the extent on dispatch or delivery to customers, The preparation of financial statements a diverse range of businesses and a acquired, reflecting conditions at the the group’s joint ventures and associates recoverable) is disclosed separately in dependent on shipping terms. Discounts under Adopted IFRS requires wide geographic spread. It is therefore date of acquisition. Adjustments to fair are also treated as adjusting items for the balance sheet. Remeasurements and returns are provided for as a management to make judgements, well-placed to manage business values include those made to bring the purposes of adjusted operating profit are recognised immediately in other reduction to revenue when sales are estimates and assumptions about risks successfully. accounting policies into line with those and adjusted profit before tax. These comprehensive income. Surpluses recorded, based on management’s the reported amounts of assets and of the group. Provisional fair values items are identified in the relevant notes. are recognised only to the extent that Basis of consolidation best estimate of the amount required liabilities, income and expenses and are finalised within 12 months of the they are recoverable. Movements in The consolidated financial statements to meet claims by customers, taking into Constant currency the disclosure of contingent assets and business combination date and, where irrecoverable surpluses are recognised include the results of the Company and account contractual and legal obligations, Constant currency is derived by liabilities. The estimates and associated significant, are adjusted by restatement immediately as remeasurements in all of its subsidiaries from the date that historical trends and past experience. translating the prior year results at assumptions are based on experience. of the comparative period in which the other comprehensive income. control commences to the date that current year average exchange rates, Actual results may differ from these acquisition occurred. Non-controlling In the retail business, revenue from control ceases. The consolidated except for countries where consumer Contributions payable by the group in estimates. Judgements made by interests are measured at the the sale of goods is recognised when financial statements also include the price inflation (CPI) has escalated to respect of defined contribution plans are management in the application of proportionate share of the net the customer purchases goods in store. group’s share of the after-tax results, extreme levels, in which case actual charged to operating profit as incurred. Adopted IFRS that have a significant identifiable assets acquired. Returns are provided for as a reduction other comprehensive income and exchange rates are used. There are Other unfunded post-employment effect on the financial statements, to revenue when sales are recorded, net assets of its joint ventures and Existing equity interests in the acquiree currently two countries where the group liabilities are accounted for in the same and estimates with a significant risk based on management’s best estimate associates on an equity-accounted basis are remeasured to fair value as at the has operations which are experiencing way as defined benefit pension plans. of material adjustment next year, are of the amount required to meet claims from the point at which joint control or date of the business combination, with extreme levels of CPI – Argentina discussed in Accounting estimates and by customers, taking into account Share-based payments significant influence respectively any resulting gain or loss taken to the and Venezuela. judgements detailed on page 131. historical trends and past experience. The fair value of share awards at grant commences, to the date that it ceases. income statement. Foreign currencies date is recognised as an employee The estimates and underlying Borrowing costs Subsidiaries are entities controlled by Goodwill arising on a business In individual companies, transactions expense with a corresponding increase assumptions are reviewed on a regular Borrowing costs are accounted for the Company. Control exists when the combination is the excess of the in foreign currencies are recorded in equity, spread over the period during basis. Revisions to accounting estimates using the effective interest method. Company has the power, directly or remeasured carrying amount of any at the rate of exchange at the date which the employees become are recognised from the period in which The group capitalises borrowing costs indirectly, to direct the activities of an existing equity interest plus the fair of the transaction. Monetary assets unconditionally entitled to the shares. the estimates are revised. directly attributable to the acquisition, entity so as to affect significantly the value of consideration payable for the and liabilities in foreign currencies The amount recognised is adjusted to construction or production of qualifying The accounting policies set out returns of that entity. additional stake over the fair value of are translated at the rate prevailing reflect expected and actual levels of items of property, plant and equipment below have been applied to all the share of net identifiable assets and at the balance sheet date. Any vesting except where the failure to as part of their cost. Interest capitalised periods presented, except where liabilities acquired (including separately resulting differences are taken vest is as a result of not meeting a is taxed under current or deferred tax detailed otherwise. identified intangible assets), net of to the income statement. market condition. as appropriate.

124 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 125

Significant accounting policies for the 52 weeks ended 14 September 2019

Income tax recognised based on management’s Cash and cash equivalents Income tax on profit or loss for the expectation of losses without regard Cash and cash equivalents comprise period comprises current and deferred to whether an impairment trigger bank and cash balances, call deposits tax. Income tax is recognised in the happened or not (an “expected and short-term investments with original income statement except to the extent credit loss” model). maturities of three months or less. that it relates to items taken directly Bank overdrafts that are repayable on Other non-current receivables to equity. demand and form an integral part of Other non-current receivables mainly the group’s cash management are Current tax is the tax expected to be comprise finance lease receivables included as a component of cash and payable on taxable income for the year, due from a joint venture and minority cash equivalents for the purpose of using tax rates enacted or substantively shareholdings in private companies. the cash flow statement. enacted during the period, together with Finance lease receivables are accounted any adjustment to tax payable in respect for in the same way as trade and other Derivatives financial instruments of previous years. receivables. Shareholdings in private and hedging companies are classified as “fair value Derivatives are used to manage the Deferred tax is provided using the through other comprehensive income”. group’s economic exposure to financial balance sheet liability method, providing They are initially measured at fair and commodity risks. The principal for temporary differences between the value, including directly attributable instruments used are foreign exchange carrying amounts of assets and liabilities transaction costs. and commodity contracts, futures, for financial reporting purposes and the swaps or options (the ‘hedging amounts used for taxation purposes. Gains or losses arising from changes instrument’). The group does not use in fair value are recognised in other The following temporary differences derivatives for speculative purposes. comprehensive income until the are not provided for: initial recognition asset is disposed of, at which time Derivatives are recognised in the balance of goodwill; initial recognition of assets the cumulative gain or loss previously sheet at fair value, based on market or liabilities affecting neither accounting recognised in other comprehensive prices or rates, or calculated using nor taxable profit other than those income is included directly in retained either discounted cash flow or option acquired in a business combination; earnings and is not recycled to the pricing models. and differences relating to investments income statement. in subsidiaries to the extent that they will Changes in the value of derivatives are probably not reverse in the foreseeable Until 15 September 2018, equity recognised in the income statement future. The amount of deferred tax investments that did not have a quoted unless they qualify for hedge accounting, provided is based on the expected market price in an active market and when recognition of any change in fair manner of realisation or settlement whose fair value could not be reliably value depends on the nature of the item of the carrying amount of assets and measured by other means were held at being hedged. liabilities, using tax rates enacted or cost. From 16 September 2018, all The purpose of hedge accounting is substantively enacted at the balance equity investments must be measured to mitigate the impact on the group’s sheet date. at fair value under IFRS 9. income statement of changes in foreign A deferred tax asset is recognised Bank and other borrowings exchange or interest rates and commodity only to the extent that it is probable that Interest-bearing bank loans and prices, by matching the impact of the future taxable profits will be available overdrafts are initially recorded at fair hedged risk and the hedging instrument against which the asset can be utilised. value, which equals the proceeds in the income statement. received, net of direct issue costs. They Additional income taxes that arise At the inception of a hedging are subsequently held at amortised cost. from the distribution of dividends are relationship, the hedging instrument Finance charges, including premiums recognised at the same time as the and the hedged item are documented, payable on settlement or redemption liability to pay the related dividend. along with the risk management and direct issue costs, are accounted for objectives and strategy for undertaking Financial assets and liabilities using an effective interest rate method various hedge transactions and Financial assets and liabilities are and are added to the carrying amount prospective effectiveness testing recognised in the group’s balance sheet of the instrument to the extent that is performed. when the group becomes a party to the they are not settled in the period in contractual provision of the instrument. which they arise. During the life of the hedging relationship, prospective effectiveness Trade and other receivables Other borrowings are initially measured testing is performed (previously, Trade and other receivables are recorded at fair value net of direct issue costs and both prospective and retrospective initially at fair value and subsequently are subsequently held at amortised cost tests were required) to ensure the measured at amortised cost. This unless the loan is designated in a hedge instrument remains an effective generally results in their recognition at relationship, in which case hedge hedge of the transaction. nominal value less an allowance for accounting treatment will apply. any doubtful debts. The allowance for Changes in the value of derivatives Trade payables doubtful debts was recognised under an used as hedges of future cash Trade payables are recorded initially at ‘incurred loss’ model until 15 September flows are recognised through other fair value and subsequently measured at 2018 and therefore it was dependent comprehensive income in the amortised cost. Generally, this results in upon the existence of an impairment hedging reserve. their recognition at their nominal value. event. From 16 September 2018, the allowance for doubtful debts is

126 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Significant accounting policies for the 52 weeks ended 14 September 2019

Income tax recognised based on management’s Cash and cash equivalents From 16 September 2018, the element Intangible assets other than goodwill Impairment charges recognised in Income tax on profit or loss for the expectation of losses without regard Cash and cash equivalents comprise of the change in fair value which relates Non-operating intangible assets are respect of CGUs are allocated first to period comprises current and deferred to whether an impairment trigger bank and cash balances, call deposits to the currency spread is recognised in intangible assets that arise on business reduce the carrying amount of any tax. Income tax is recognised in the happened or not (an “expected and short-term investments with original the cost of hedging reserve, with combinations and typically include goodwill allocated to that CGU and income statement except to the extent credit loss” model). maturities of three months or less. the remaining change in fair value technology, brands, customer then to reduce the carrying amount that it relates to items taken directly Bank overdrafts that are repayable on recognised in the hedging reserve relationships and grower agreements. of the other assets in the unit on Other non-current receivables to equity. demand and form an integral part of (in the period before 16 September Operating intangible assets are acquired a pro rata basis. Other non-current receivables mainly the group’s cash management are 2018, the entire change in fair value was in the ordinary course of business and Current tax is the tax expected to be comprise finance lease receivables Calculation of recoverable amount included as a component of cash and recognised in the hedging reserve) and typically include computer software, land payable on taxable income for the year, due from a joint venture and minority The recoverable amount of assets is the cash equivalents for the purpose of any ineffective portion is recognised use rights and emissions trading licences. using tax rates enacted or substantively shareholdings in private companies. greater of their fair value less costs to the cash flow statement. immediately in the income statement. enacted during the period, together with Finance lease receivables are accounted Intangible assets other than goodwill sell and their value in use. In assessing any adjustment to tax payable in respect for in the same way as trade and other Derivatives financial instruments When the future cash flow results in the are stated at cost less accumulated value in use, estimated future cash of previous years. receivables. Shareholdings in private and hedging recognition of a non-financial asset or amortisation and impairment charges. flows are discounted to present value companies are classified as “fair value Derivatives are used to manage the liability, then at the time the asset or using a pre-tax discount rate that reflects Deferred tax is provided using the Amortisation is charged to the income through other comprehensive income”. group’s economic exposure to financial liability is recognised, the related gains current market assessments of the time balance sheet liability method, providing statement on a straight-line basis over They are initially measured at fair and commodity risks. The principal and losses previously recognised in the value of money and the risks specific to for temporary differences between the the estimated useful lives of intangible value, including directly attributable instruments used are foreign exchange hedging reserve are included in the initial the asset. For an asset that does not carrying amounts of assets and liabilities assets from the date they are available transaction costs. and commodity contracts, futures, measurement of that asset or liability. generate largely independent for financial reporting purposes and the for use. The estimated useful lives are swaps or options (the ‘hedging cash inflows, recoverable amount is amounts used for taxation purposes. Gains or losses arising from changes For hedges that do not result in the generally deemed to be no longer than: instrument’). The group does not use determined for the CGU to which in fair value are recognised in other recognition of an asset or a liability, The following temporary differences derivatives for speculative purposes. Technology and brands – up to 15 years the asset belongs. comprehensive income until the amounts recorded in the hedging are not provided for: initial recognition Customer relationships – up to 10 years asset is disposed of, at which time Derivatives are recognised in the balance reserve are recognised in the income Reversals of impairment of goodwill; initial recognition of assets Grower agreements – up to 10 years the cumulative gain or loss previously sheet at fair value, based on market statement in the same period in which An impairment charge in respect of or liabilities affecting neither accounting recognised in other comprehensive prices or rates, or calculated using the hedged item affects profit or loss. Goodwill goodwill is not subsequently reversed. nor taxable profit other than those income is included directly in retained either discounted cash flow or option Goodwill is defined under ‘Business For other assets, an impairment charge acquired in a business combination; Hedges of the group’s net investment in earnings and is not recycled to the pricing models. combinations’ on page 124. Certain is reversed if there has been a change and differences relating to investments foreign operations principally comprise income statement. commercial assets associated with the in the estimates used to determine in subsidiaries to the extent that they will Changes in the value of derivatives are borrowings in the currency of the acquisition of a business are not capable the recoverable amount, but only probably not reverse in the foreseeable Until 15 September 2018, equity recognised in the income statement investment’s net assets. of being recognised in the acquisition to the extent that the new carrying future. The amount of deferred tax investments that did not have a quoted unless they qualify for hedge accounting, Changes in the fair value of derivative or balance sheet. In such circumstances, amount does not exceed the carrying provided is based on the expected market price in an active market and when recognition of any change in fair non-derivative financial instruments that goodwill is recognised, which may amount that would have been manner of realisation or settlement whose fair value could not be reliably value depends on the nature of the item are designated and effective as hedges include, but is not necessarily limited determined, net of depreciation of the carrying amount of assets and measured by other means were held at being hedged. of net investments are recognised to, workforce assets and the benefits or amortisation, if no impairment liabilities, using tax rates enacted or cost. From 16 September 2018, all The purpose of hedge accounting is in other comprehensive income in of expected future synergies. charge had been recognised. substantively enacted at the balance equity investments must be measured to mitigate the impact on the group’s the net investment hedging reserve. sheet date. at fair value under IFRS 9. Goodwill is not amortised but is subject Property, plant and equipment income statement of changes in foreign Any ineffective portion is recognised to an annual impairment review. Items of property, plant and equipment A deferred tax asset is recognised Bank and other borrowings exchange or interest rates and commodity immediately in the income statement. are stated at cost less accumulated only to the extent that it is probable that Interest-bearing bank loans and prices, by matching the impact of the Research and development Hedge accounting is discontinued when depreciation and impairment charges. future taxable profits will be available overdrafts are initially recorded at fair hedged risk and the hedging instrument Research expenditure is expensed the hedging instrument expires or is sold, against which the asset can be utilised. value, which equals the proceeds in the income statement. as incurred. Development expenditure Depreciation is charged to the income terminated, exercised, or no longer received, net of direct issue costs. They is capitalised if the product or process statement on a straight-line basis over Additional income taxes that arise At the inception of a hedging qualifies for hedge accounting. At that are subsequently held at amortised cost. is technically and commercially feasible the estimated useful economic lives of from the distribution of dividends are relationship, the hedging instrument time, any cumulative gain or loss on the Finance charges, including premiums but is otherwise expensed as incurred. items of property, plant and equipment recognised at the same time as the and the hedged item are documented, hedging instrument recognised in the payable on settlement or redemption Capitalised development expenditure sufficient to reduce them to estimated liability to pay the related dividend. along with the risk management hedging reserve is retained in the hedging and direct issue costs, are accounted for is stated at cost less accumulated residual value. Land is not depreciated. objectives and strategy for undertaking reserve until the forecast transaction Financial assets and liabilities using an effective interest rate method amortisation and impairment charges. Estimated useful economic lives are various hedge transactions and occurs. Gains or losses on hedging Financial assets and liabilities are and are added to the carrying amount generally deemed to be no longer than: prospective effectiveness testing instruments relating to an underlying Impairment recognised in the group’s balance sheet of the instrument to the extent that is performed. exposure that no longer exists are taken The carrying amounts of the group’s Freehold buildings up to 66 years when the group becomes a party to the they are not settled in the period in to the income statement. intangible assets and property, plant and Plant and equipment, fixtures and fittings contractual provision of the instrument. which they arise. During the life of the hedging equipment are reviewed at each balance – sugar factories, up to 20 years relationship, prospective effectiveness The group economically hedges foreign Trade and other receivables Other borrowings are initially measured sheet date to determine whether there yeast plants, testing is performed (previously, currency exposure on recognised Trade and other receivables are recorded at fair value net of direct issue costs and is any indication of impairment. If any mills and bakeries both prospective and retrospective monetary assets and liabilities but does initially at fair value and subsequently are subsequently held at amortised cost such indication exists, the asset’s – other operations up to 12 years tests were required) to ensure the not normally seek hedge accounting. measured at amortised cost. This unless the loan is designated in a hedge recoverable amount is estimated. For Vehicles up to 10 years instrument remains an effective Any derivatives that the group holds to generally results in their recognition at relationship, in which case hedge goodwill, and intangibles without a finite Sugar cane roots up to 10 years hedge of the transaction. hedge this exposure are classified as nominal value less an allowance for accounting treatment will apply. life, the recoverable amount is estimated ‘fair value through profit and loss’ within any doubtful debts. The allowance for Changes in the value of derivatives at least annually. Leases Trade payables derivative assets and liabilities. Changes doubtful debts was recognised under an used as hedges of future cash A lease is an agreement whereby the Trade payables are recorded initially at in the fair value of such derivatives and An impairment charge is recognised ‘incurred loss’ model until 15 September flows are recognised through other lessor conveys to the lessee, in return fair value and subsequently measured at the foreign exchange gains and losses in the income statement whenever 2018 and therefore it was dependent comprehensive income in the for a payment or a series of payments, amortised cost. Generally, this results in arising on the related monetary items the carrying amount of an asset or its upon the existence of an impairment hedging reserve. the right to use a specific asset for an their recognition at their nominal value. are recognised within operating profit. cash-generating unit (CGU) exceeds event. From 16 September 2018, the agreed period of time. its recoverable amount. allowance for doubtful debts is

126 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 127 Significant accounting policies for the 52 weeks ended 14 September 2019

Where the group is a lessee and has is charged below operating profit as New accounting policies substantially all the risks and rewards of the inventories are sold or used. The following accounting standards ownership of an asset, the arrangement and amendments were adopted Hyperinflation is considered a finance lease. Finance during the year and had no significant The Argentinian economy was leases are recognised as assets of impact on the group, except as further designated hyperinflationary from the group within property, plant and described below: 1 July 2018. The group concluded this equipment at the inception of the lease had an insignificant impact for the 2018 IFRS 9 at the lower of fair value and the present • Financial Instruments: financial year but has applied IAS 29 value of the minimum lease payments. Classification and Measurement Financial Reporting in Hyperinflationary Depreciation on leased assets is charged • IFRS 15 Revenue from Contracts Economies to its Argentinian operations to the income statement on the same with Customers from the beginning of the 2019 basis as owned assets. Payments made • Clarifications to IFRS 15 Revenue financial year. IAS 29 requires that under finance leases are apportioned from Contracts with Customers hyperinflationary adjustments are between capital repayments and • IFRIC 22 Foreign Currency reflected from the start of the reporting interest expense charged to the Transactions and Advance period in which it is applied. For the income statement. Other leases where Consideration group’s Argentinian operations this is the group is a lessee are treated as • Amendments to IFRS 2 Classification 1 September 2018. In accordance operating leases. Payments made under and Measurement of Share-based with IAS 21 The Effects of Changes operating leases are recognised in the Payment Transactions in Foreign Exchange Rates, the income statement on a straight-line • Amendments to IFRS 4 Applying IFRS comparative figures for 2018 have basis over the term of the lease, as is 9 Financial Instruments with IFRS 4 not been modified. The adjustments the benefit of lease incentives. Insurance Contracts required by IAS 29 are set out below. • Annual Improvements to IFRS Where the group is a lessor under an Standards 2014 – 2016 operating lease, the asset is capitalised • Adjustment of historical cost non- within property, plant and equipment monetary assets and liabilities from The two most significant new standards and depreciated over its useful their date of initial recognition to the are IFRS 9 and IFRS 15, further details of economic life. Payments received under balance sheet date to reflect the which are set out below. operating leases are recognised in the changes in purchasing power of the IFRS 9 Financial Instruments income statement on a straight-line currency caused by inflation, according IFRS 9 replaces IAS 39 Financial basis over the term of the lease. to the official indices published by the Federación Argentina de Instruments: Recognition and Current biological assets Consejos Profesionales de Ciencias Measurement. It includes requirements Current biological assets are measured Económicas (FACPCE). for recognition and measurement, at fair value less costs to sell. • Adjustment of the components of impairment, derecognition and general the income statement and cash flow hedge accounting. The basis of valuation for growing cane statement for the inflation index since is estimated sucrose content valued at The standard introduces changes to their generation, with a balancing estimated sucrose price for the following three key areas: entry in the income statement and a season, less estimated costs for reconciling item in the cash flow • new requirements for the harvesting and transport. statement, respectively. classification and measurement When harvested, growing cane is • Adjustment of the income statement of financial instruments; transferred to inventory at fair value to reflect the impact of inflation on • a new impairment model based on less costs to sell. holding monetary assets and liabilities expected credit losses for recognising in local currency. provisions (compared to IAS 39, which Inventories • The financial statements of the used an incurred loss model); and Inventories are stated at the lower group’s Argentinian operations have • simplified hedge accounting through of cost and net realisable value. Cost been translated into sterling at the closer alignment with an entity’s risk includes raw materials, direct labour and closing exchange rate at 14 management methodology. expenses and an appropriate proportion September 2019 (ARS69.99:£1). of production and other overheads, Financial assets are classified using a • The cumulative impact corresponding calculated on a first-in first-out basis. principles-based approach in three to previous years has been reflected measurement categories: amortised Inventories for the retail businesses in other comprehensive income in cost, fair value through other are valued at the lower of cost and net the period. comprehensive income or fair value realisable value using the retail method, The FACPCE index was 155.1034 through profit or loss. Classification is calculated on the basis of selling price at 31 August 2018 and 239.6077 at performed on initial recognition of the less appropriate trading margin. All 31 August 2019. The inflation index asset based on the characteristics of retail inventories are finished goods. for the year is therefore 1.5448. the asset and the local business model. Inventories recorded on the acquisition The vast majority of the group’s financial The Venezuelan economy has been of a business are recognised at assets were previously recorded at designated hyperinflationary for a fair value. The book value of such amortised cost and this continues to number of years, but the impact on the inventories is charged to adjusted be the case. group’s results remains immaterial. operating profit as they are sold or used. Any fair value uplift, if significant,

128 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Significant accounting policies for the 52 weeks ended 14 September 2019

Where the group is a lessee and has is charged below operating profit as New accounting policies For financial liabilities, there are no Step 1 Identify the contract(s) with • Amendments to IFRS 3 Definition substantially all the risks and rewards of the inventories are sold or used. The following accounting standards significant classification and measurement a customer of a Business effective 2021 financial ownership of an asset, the arrangement and amendments were adopted changes compared to IAS 39. Step 2 Identify the performance year (not yet endorsed by the EU) Hyperinflation is considered a finance lease. Finance during the year and had no significant obligations in the contract • Amendments to IFRS 9 Prepayment The Argentinian economy was The new principles for hedge accounting leases are recognised as assets of impact on the group, except as further Step 3 Determine the transaction price Features with Negative Compensation designated hyperinflationary from provide a more flexible framework the group within property, plant and described below: Step 4 Allocate the transaction price to effective 2020 financial year 1 July 2018. The group concluded this which is better aligned with the the performance obligations in equipment at the inception of the lease Amendments to IAS 1 Presentation had an insignificant impact for the 2018 IFRS 9 economic decision-making of the group. • at the lower of fair value and the present • Financial Instruments: the contract financial year but has applied IAS 29 This should result in the group being of Financial Statements effective 2021 value of the minimum lease payments. Classification and Measurement Step 5 Recognise revenue when Financial Reporting in Hyperinflationary able to achieve hedge accounting in the (or as) the entity satisfies a financial year (not yet endorsed by Depreciation on leased assets is charged • IFRS 15 Revenue from Contracts Economies to its Argentinian operations future on a wider range of transactions performance obligation the EU) to the income statement on the same with Customers from the beginning of the 2019 than was possible under IAS 39. The IAS • Amendments to IAS 8 Accounting basis as owned assets. Payments made • Clarifications to IFRS 15 Revenue The group previously completed financial year. IAS 29 requires that 39 effectiveness test has been replaced Policies, Changes in Accounting under finance leases are apportioned from Contracts with Customers a groupwide impact assessment, hyperinflationary adjustments are with the ‘economic relationship’ Estimates and Errors effective 2021 between capital repayments and • IFRIC 22 Foreign Currency utilising external resource to support reflected from the start of the reporting principle. Retrospective assessment financial year (not yet endorsed by interest expense charged to the Transactions and Advance local management where necessary. period in which it is applied. For the of hedge effectiveness is no longer the EU) income statement. Other leases where Consideration The assessment included areas group’s Argentinian operations this is necessary. IFRS 9 also requires additional • Amendments to IAS 19 Plan the group is a lessee are treated as • Amendments to IFRS 2 Classification that required additional specific 1 September 2018. In accordance disclosures concerning risk management Amendment, Curtailment or operating leases. Payments made under and Measurement of Share-based consideration, including rights of return with IAS 21 The Effects of Changes and the effects of hedge accounting. Settlement effective 2020 operating leases are recognised in the Payment Transactions and principal vs agent considerations. in Foreign Exchange Rates, the financial year income statement on a straight-line • Amendments to IFRS 4 Applying IFRS The group previously completed a The group’s revenue recognition comparative figures for 2018 have • Amendments to IAS 28 Long-term basis over the term of the lease, as is 9 Financial Instruments with IFRS 4 groupwide impact assessment across processes are generally straightforward, not been modified. The adjustments Interests in Associates and Joint the benefit of lease incentives. Insurance Contracts these three key areas, supported by with recognition of revenue at the point required by IAS 29 are set out below. Ventures effective 2020 financial year • Annual Improvements to IFRS external resource, involving each of the of sale and little significant judgement Where the group is a lessor under an • Amendments to References to the Standards 2014 – 2016 group’s businesses. As a result of this required in determining the timing operating lease, the asset is capitalised • Adjustment of historical cost non- Conceptual Framework in IFRS assessment, the group concluded that of transfer of control. within property, plant and equipment monetary assets and liabilities from The two most significant new standards Standards effective 2021 financial the adoption of IFRS 9 would not have and depreciated over its useful their date of initial recognition to the are IFRS 9 and IFRS 15, further details of The impact assessment concluded year (not yet endorsed by the EU) a significant impact on either the group’s economic life. Payments received under balance sheet date to reflect the which are set out below. that IFRS 15 would result in no change • Annual Improvements to IFRS results or financial position. operating leases are recognised in the changes in purchasing power of the to the timing of revenue or the timing Standards 2015 – 2017 effective currency caused by inflation, according IFRS 9 Financial Instruments income statement on a straight-line IFRS 9 applies retrospectively, but or amount of profit recognised. The 2020 financial year to the official indices published by IFRS 9 replaces IAS 39 Financial basis over the term of the lease. with substantial transition provisions, only effect on the amount of revenue the Federación Argentina de Instruments: Recognition and The new standard with the most including not being required to restate recognised was £31m of operating Current biological assets Consejos Profesionales de Ciencias Measurement. It includes requirements significant effect on the group’s comparative information. expenses in the prior year which Current biological assets are measured for recognition and measurement, financial statements is IFRS 16, further Económicas (FACPCE). under IFRS 15 are now deducted at fair value less costs to sell. impairment, derecognition and general details of which are set out below. The • Adjustment of the components of The group adopted IFRS 9 on 16 from revenue. the income statement and cash flow hedge accounting. September 2018 and has applied it for impact of the other standards effective The basis of valuation for growing cane statement for the inflation index since the first time in the 2019 financial year, The group adopted IFRS 15 on 16 in 2020 and beyond have not yet been is estimated sucrose content valued at The standard introduces changes to their generation, with a balancing without restating comparative information. September 2018 and has applied it for fully assessed. estimated sucrose price for the following three key areas: entry in the income statement and a No cumulative adjustment to recognise the first time in the 2019 financial year. season, less estimated costs for IFRS 16 Leases reconciling item in the cash flow • new requirements for the the impact of applying IFRS 9 as at 16 IFRS 15 was adopted retrospectively harvesting and transport. IFRS 16 introduces a new model without the requirement to restate statement, respectively. classification and measurement September 2018 was required. for the identification of leases and comparative information. IFRS 15 had no When harvested, growing cane is • Adjustment of the income statement of financial instruments; accounting for lessors and lessees. Further details on the implementation impact on the group’s reported profits. transferred to inventory at fair value to reflect the impact of inflation on • a new impairment model based on It replaces IAS 17 Leases and other of IFRS 9 are given in note 25 k). No cumulative adjustment to recognise less costs to sell. holding monetary assets and liabilities expected credit losses for recognising related requirements. The group in local currency. provisions (compared to IAS 39, which IFRS 15 Revenue from Contracts the impact of applying IFRS 15 as at 16 Inventories adopted IFRS 16 on 15 September 2019 • The financial statements of the used an incurred loss model); and with Customers September 2018 was required. Inventories are stated at the lower and will apply it for the first time in the group’s Argentinian operations have • simplified hedge accounting through IFRS 15 establishes a principles-based of cost and net realisable value. Cost The group is assessing the impact of the 2020 financial year. been translated into sterling at the closer alignment with an entity’s risk approach to recognising revenue only includes raw materials, direct labour and following standards, interpretations and closing exchange rate at 14 management methodology. when performance obligations are IFRS 16 distinguishes leases from expenses and an appropriate proportion amendments that are not yet effective. September 2019 (ARS69.99:£1). satisfied and control of the related service contracts on the basis of control of production and other overheads, Financial assets are classified using a Where already endorsed by the EU, • The cumulative impact corresponding goods or services is transferred. It of an identified asset. For lessees, calculated on a first-in first-out basis. principles-based approach in three these changes will be adopted on the to previous years has been reflected addresses items such as the nature, it removes the previous accounting measurement categories: amortised effective dates noted. Where not yet Inventories for the retail businesses in other comprehensive income in amount, timing and uncertainty of distinction between (off-balance sheet) cost, fair value through other endorsed by the EU, the adoption date are valued at the lower of cost and net the period. revenue and cash flows arising from operating leases and (on-balance sheet) comprehensive income or fair value is less certain: realisable value using the retail method, contracts with customers. IFRS 15 finance leases and introduces a single The FACPCE index was 155.1034 through profit or loss. Classification is calculated on the basis of selling price replaces IAS 18 Revenue and other • IFRS 16 Leases effective 2020 model recognising a lease liability and at 31 August 2018 and 239.6077 at performed on initial recognition of the less appropriate trading margin. All related requirements. financial year corresponding right-of-use asset for all 31 August 2019. The inflation index asset based on the characteristics of retail inventories are finished goods. • IFRS 17 Insurance Contracts effective leases except for short-term leases and for the year is therefore 1.5448. the asset and the local business model. IFRS 15 applies a five-step approach 2022 financial year (not yet endorsed leases of low-value assets. Inventories recorded on the acquisition The vast majority of the group’s financial to the timing of revenue recognition The Venezuelan economy has been by the EU) of a business are recognised at assets were previously recorded at and applies to all contracts with For lessors, IFRS 16 substantially designated hyperinflationary for a • IFRIC 23 Uncertainty over Income fair value. The book value of such amortised cost and this continues to customers except those in the scope retains existing accounting requirements number of years, but the impact on the Tax Treatments effective 2020 inventories is charged to adjusted be the case. of other standards. and continues to require classification group’s results remains immaterial. financial year operating profit as they are sold or of leases either as operating or finance used. Any fair value uplift, if significant, in nature.

128 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 129 Significant accounting policies Accounting estimates and judgements for the 52 weeks ended 14 September 2019 for the 52 weeks ended 14 September 2019

The group engaged external experts to The first results published under IFRS 16 There is no change to overall cash In applying the accounting policies Post-retirement benefits Biological assets support its implementation project and will be the 2020 interim results. flows. Operating lease payments were detailed on pages 124 to 130, The group’s defined benefit pension In valuing growing cane, estimating established a steering committee to previously presented as operating cash management has made estimates in a schemes and similar arrangements are sucrose content requires management Impact on the group’s results and oversee its governance, which reported flows and finance lease payments were number of areas and the actual outcome assessed annually in accordance with to assess expected cane and sucrose financial position to the Audit committee. During the allocated between payments of principal may differ from those calculated. Key IAS 19. The accounting valuation, which yields for the following season The impact of IFRS 16 on the group’s current period, the group largely and interest within financing cash flows. sources of estimation uncertainty at the has been assessed using assumptions considering weather conditions and results and financial position is completed its implementation project. Under IFRS 16, lease payments are balance sheet date, with the potential for determined with independent actuarial harvesting programmes. Estimating significant. split between payments of principal material adjustment to the carrying value advice, resulted in a net asset of £33m sucrose price requires management IFRS 16 permits a choice of transitional Lease liabilities are measured initially at and interest, presented as financing of assets and liabilities within the next being recognised as at 14 September to assess into which markets the approaches: a fully retrospective approach the present value of lease payments yet cash flows. financial year, are set out below. 2019. The size of this net asset is forthcoming crop will be sold and assess with an adjustment made to the opening to be paid, subsequently adjusted for sensitive to the market value of the domestic and export prices as well as retained earnings of the comparative Operating lease expenses previously Forecasts and discount rates interest and lease payments as well assets held by the schemes, to the related foreign currency exchange rates. period; or a modified retrospective charged to operating profit will be The carrying values of a number of items as a number of other changes to lease discount rate used in assessing liabilities, The carrying value of growing cane is approach where the cumulative effect replaced by depreciation of right-of-use on the balance sheet are dependent on provisions. Lease liabilities are included to the actuarial assumptions (which disclosed in note 16. of initial application is recognised at the assets (within operating profit) and estimates of future cash flows arising in net debt. include price inflation, rates of pension date of initial application without restating interest cost (within finance expense). from the group’s operations which, in Taxation and salary increases, mortality and other prior periods. Right-of-use assets are measured initially Although the aggregate income some circumstances, are discounted The group makes provision for open demographic assumptions) and to the at cost (including the value of the lease statement impact of each lease over to arrive at a net present value. tax issues including, in a number of The age, size and complexity of the level of contributions. Further details liability) and subsequently at cost less its life will not change, the generally jurisdictions, routine tax audits which group’s lease portfolio means that it Assessment for impairment involves are included in note 11. accumulated depreciation and any straight-line profile of operating lease are by nature complex and can would either be impossible or extremely comparing the book value of an asset impairment losses, adjusted for any expense will be more front-loaded under Adoption of IFRS 16 Leases take a number of years to resolve. costly and difficult to collate sufficient with its recoverable amount (being the remeasurement of the lease liability. IFRS 16 because of the interest charge The group has a significant volume Provisions are based on management’s information to apply the fully higher of value in use and fair value less Right-of-use assets are reported as on the lease liability. of high value leases, especially in the interpretation of tax law in each country retrospective approach. The group costs to sell). Value in use is determined non-current assets. Retail segment. Adoption of IFRS 16 and ongoing monitoring of the outcome has therefore determined to adopt with reference to projected future cash has required management to make a of EU cases and investigations on tax the modified retrospective approach. flows discounted at an appropriate rate. number of judgements and estimates. rulings, and reflect the best estimate Both the cash flows and the discount These include the identification of lease of the liability. The group believes it rate involve a significant degree of The changes set out below to the group’s assets and liabilities will be recorded from the transition date of 15 September 2019 arrangements required to be capitalised, has made adequate provision for estimation uncertainty. in the 2020 financial year. The change will be charged against opening equity, firstly in the 2020 interim report and subsequently consistent and reasonable assessment such matters. in the 2020 annual report. The realisation of deferred tax assets of the accounting lease term, and the Transition adjustment is dependent on the generation of derivation of appropriate discount rates £bn sufficient future taxable profits. The to apply to gross lease obligations. Non-current assets (recognition of right-of-use assets, partially offset by reclassifications from property, plant and group recognises deferred tax assets to equipment) 3.1 the extent that it is considered probable Net current assets (primarily removal of lease incentives from accruals) 0.2 that sufficient taxable profits will be Net debt (3.6) available in the future. Deferred tax Deferred tax 0.1 assets are reduced to the extent that Impact on net assets (0.2) it is no longer considered probable that the related tax benefit will be realised. IFRS 16 affects a number of other financial statement captions and ratios, including the following:

Item Comment Earnings Based on our impact assessment, the group expects a marginal impact on earnings. There will be a consequent marginal impact on dividend cover. Operating profit/ Operating profit and operating margin are expected to increase significantly as operating lease expenses operating margin are replaced by the depreciation of right-of-use assets. Finance expense Finance expense is expected to increase significantly as a result of the interest cost on lease liabilities. Interest cover will therefore reduce. Taxation Taxation will change in line with the changes in profit before tax. Net debt Net debt will increase very significantly as lease liabilities are recorded within current and non-current liabilities. Gearing ratios will therefore increase. The reconciliation of net debt will include more non-cash items as new leases are entered into. Return on capital employed The return on capital employed will reduce as a result of the changes to operating profit and non-current assets. Cash flow statement There is no overall impact on cash flow, but classifications of cash flows will change, as set out above.

The group will reassess its incentive arrangements to align targets with the new accounting requirements. IFRS 16 has the most significant impact on the Retail segment given the number of significant store leases to which Primark is a party. The group’s current leasing disclosures are given in note 26 of this annual report.

130 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 2019 Associated British Foods plc 131

Financial statements Significant accounting policies Accounting estimates and judgements for the 52 weeks ended 14 September 2019 for the 52 weeks ended 14 September 2019

130 Associated British Foods plc Annual Report and Accounts 2019 Annual Report andand AccountsAccounts 2019 2019 Associated British Foods plc 131

Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

1. Operating segments Segment results, assets and liabilities Grocery The group has five operating segments, include items directly attributable to The manufacture of grocery products, as described below. These are the a segment as well as those that can including hot beverages, sugar & group’s operating divisions, based on be allocated on a reasonable basis. sweeteners, vegetable oils, balsamic the management and internal reporting Unallocated items comprise mainly vinegars, bread & baked goods, cereals, structure, which combine businesses corporate assets and expenses, cash, ethnic foods, and meat products, with common characteristics, primarily borrowings, employee benefits balances which are sold to retail, wholesale in respect of the type of products and current and deferred tax balances. and foodservice businesses. offered by each business, but also the Segment non-current asset additions Sugar production processes involved and the are the total cost incurred during the The growing and processing of sugar manner of the distribution and sale of period to acquire segment assets that beet and sugar cane for sale to industrial goods. The board is the chief operating are expected to be used for more than users and to Silver Spoon, which is decision-maker. one year, comprising property, plant included in the Grocery segment. and equipment, operating intangibles Inter-segment pricing is determined on and biological assets. Agriculture an arm’s length basis. Segment result The manufacture of animal feeds and is adjusted operating profit, as shown Businesses disposed are shown the provision of other products and on the face of the consolidated income separately and comparatives have services for the agriculture sector. statement. Segment assets comprise been re-presented for businesses all non-current assets except employee sold or closed during the year. Ingredients benefits assets and deferred tax assets, The manufacture of bakers’ yeast, The group is comprised of the following and all current assets except cash bakery ingredients, enzymes, lipids, operating segments: and cash equivalents, current asset yeast extracts and cereal specialities. investments and income tax assets. Segment liabilities comprise trade and Retail other payables, derivative liabilities Buying and merchandising value clothing and provisions. and accessories through the Primark and Penneys retail chains. Geographical information In addition to the required disclosure for operating segments, disclosure is also given of certain geographical information about the group’s operations, based on the geographical groupings: United Kingdom; Europe & Africa; The Americas; and Asia Pacific. Revenues are shown by reference to the geographical location of customers. Profits are shown by reference to the geographical location of the businesses. Segment assets are based on the geographical location of the assets.

Adjusted Revenue operating profit 2019 2018 2019 2018 £m £m £m £m Operating segments Grocery 3,521 3,420 380 335 Sugar 1,608 1,730 26 123 Agriculture 1,385 1,350 42 59 Ingredients 1,515 1,459 136 143 Retail 7,792 7,477 913 843 Central – – (76) (64) 15,821 15,436 1,421 1,439 Businesses disposed: Sugar – 128 – (34) Agriculture – 1 – (1) Ingredients 3 9 – – 15,824 15,574 1,421 1,404 Geographical information United Kingdom 5,971 5,863 476 557 Europe & Africa 5,992 5,851 589 528 The Americas 1,609 1,525 237 206 Asia Pacific 2,249 2,197 119 148 15,821 15,436 1,421 1,439 Businesses disposed: United Kingdom – 66 – (34) Europe & Africa – 62 – – The Americas 3 9 – – Asia Pacific – 1 – (1) 15,824 15,574 1,421 1,404

132 Associated British Foods plc Annual Report and Accounts 2019

Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

1. Operating segments Segment results, assets and liabilities Grocery 1. Operating segments continued The group has five operating segments, include items directly attributable to The manufacture of grocery products, For the 52 weeks ended 14 September 2019 as described below. These are the a segment as well as those that can including hot beverages, sugar & group’s operating divisions, based on be allocated on a reasonable basis. sweeteners, vegetable oils, balsamic Grocery Sugar Agriculture Ingredients Retail Central Total £m £m £m £m £m £m £m the management and internal reporting Unallocated items comprise mainly vinegars, bread & baked goods, cereals, structure, which combine businesses corporate assets and expenses, cash, ethnic foods, and meat products, Revenue from continuing businesses 3,525 1,667 1,388 1,690 7,792 (241) 15,821 Internal revenue (4) (59) (3) (175) – 241 – with common characteristics, primarily borrowings, employee benefits balances which are sold to retail, wholesale External revenue from continuing businesses 3,521 1,608 1,385 1,515 7,792 – 15,821 in respect of the type of products and current and deferred tax balances. and foodservice businesses. Businesses disposed – – – 3 – – 3 offered by each business, but also the Segment non-current asset additions Sugar Revenue from external customers 3,521 1,608 1,385 1,518 7,792 – 15,824 production processes involved and the are the total cost incurred during the The growing and processing of sugar manner of the distribution and sale of period to acquire segment assets that Adjusted operating profit before joint ventures beet and sugar cane for sale to industrial goods. The board is the chief operating are expected to be used for more than and associates 347 26 30 122 913 (76) 1,362 users and to Silver Spoon, which is decision-maker. one year, comprising property, plant Share of profit after tax from joint ventures and associates 33 – 12 14 – – 59 included in the Grocery segment. and equipment, operating intangibles Adjusted operating profit 380 26 42 136 913 (76) 1,421 Inter-segment pricing is determined on and biological assets. Agriculture Profits less losses on disposal of non-current assets 3 – 1 – – – 4 an arm’s length basis. Segment result Amortisation of non-operating intangibles (40) – (2) (5) – – (47) The manufacture of animal feeds and is adjusted operating profit, as shown Businesses disposed are shown Acquired inventory fair value adjustments (15) – – – – – (15) the provision of other products and on the face of the consolidated income separately and comparatives have Transaction costs (1) – – (1) – – (2) services for the agriculture sector. statement. Segment assets comprise been re-presented for businesses Exceptional items (65) – – – – (14) (79) all non-current assets except employee sold or closed during the year. Ingredients Profits less losses on sale and closure of businesses 4 – (3) (95) – – (94) benefits assets and deferred tax assets, The manufacture of bakers’ yeast, Profit before interest 266 26 38 35 913 (90) 1,188 The group is comprised of the following and all current assets except cash bakery ingredients, enzymes, lipids, Finance income 15 15 operating segments: Finance expense (42) (42) and cash equivalents, current asset yeast extracts and cereal specialities. investments and income tax assets. Other financial income 12 12 Taxation (277) (277) Segment liabilities comprise trade and Retail Profit for the period 266 26 38 35 913 (382) 896 other payables, derivative liabilities Buying and merchandising value clothing and accessories through the Primark and provisions. Segment assets (excluding joint ventures and associates) 2,732 2,083 408 1,422 4,775 129 11,549 and Penneys retail chains. Investments in joint ventures and associates 45 26 135 69 – – 275 Geographical information Segment assets 2,777 2,109 543 1,491 4,775 129 11,824 In addition to the required disclosure for operating segments, disclosure is also given of certain geographical information about Cash and cash equivalents 1,495 1,495 the group’s operations, based on the geographical groupings: United Kingdom; Europe & Africa; The Americas; and Asia Pacific. Current asset investments 29 29 Income tax 24 24 Revenues are shown by reference to the geographical location of customers. Profits are shown by reference to the geographical Deferred tax assets 160 160 location of the businesses. Segment assets are based on the geographical location of the assets. Employee benefits assets 228 228 Segment liabilities (540) (388) (137) (278) (1,476) (184) (3,003) Adjusted Loans and overdrafts (588) (588) Revenue operating profit Income tax (163) (163) 2019 2018 2019 2018 Deferred tax liabilities (261) (261) £m £m £m £m Employee benefits liabilities (195) (195) Operating segments Net assets 2,237 1,721 406 1,213 3,299 674 9,550 Grocery 3,521 3,420 380 335 Sugar 1,608 1,730 26 123 Non-current asset additions 132 98 14 93 382 13 732 Agriculture 1,385 1,350 42 59 Depreciation (96) (79) (12) (51) (303) (3) (544) Ingredients 1,515 1,459 136 143 Amortisation (53) (2) (3) (7) (2) (1) (68) Retail 7,792 7,477 913 843 Impairment of goodwill on sale and closure of businesses – – (3) (56) – – (59) Central – – (76) (64) Impairment of property, plant and equipment on sale and 15,821 15,436 1,421 1,439 closure of businesses – – – (32) – – (32) Businesses disposed: Sugar – 128 – (34) Agriculture – 1 – (1) United Europe The Asia Ingredients 3 9 – – Kingdom & Africa Americas Pacific Total Geographical information £m £m £m £m £m 15,824 15,574 1,421 1,404 Geographical information Revenue from external customers 5,971 5,992 1,612 2,249 15,824 United Kingdom 5,971 5,863 476 557 Segment assets 4,406 4,842 1,194 1,382 11,824 Europe & Africa 5,992 5,851 589 528 Non-current asset additions 255 345 57 75 732 The Americas 1,609 1,525 237 206 Depreciation (191) (247) (45) (61) (544) Asia Pacific 2,249 2,197 119 148 Amortisation (41) (16) (4) (7) (68) 15,821 15,436 1,421 1,439 Acquired inventory fair value adjustments – (15) – – (15) Businesses disposed: Impairment of goodwill on sale and closure of businesses (3) – – (56) (59) United Kingdom – 66 – (34) Impairment of property, plant and equipment on sale and closure Europe & Africa – 62 – – of businesses – – – (32) (32) The Americas 3 9 – – Transaction costs – (1) (1) – (2) Asia Pacific – 1 – (1) Exceptional items (79) – – – (79) 15,824 15,574 1,421 1,404 Segment disclosures given above are stated before reclassification of assets and liabilities classified as held for sale

(see note 14).

132 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 133

Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

1. Operating segments continued For the 52 weeks ended 15 September 2018

Grocery Sugar Agriculture Ingredients Retail Central Total £m £m £m £m £m £m £m Revenue from continuing businesses 3,423 1,821 1,354 1,640 7,477 (279) 15,436 Internal revenue (3) (91) (4) (181) – 279 – External revenue from continuing businesses 3,420 1,730 1,350 1,459 7,477 – 15,436 Businesses disposed – 128 1 9 – – 138 Revenue from external customers 3,420 1,858 1,351 1,468 7,477 – 15,574

Adjusted operating profit before joint ventures and associates 306 121 47 129 843 (64) 1,382 Share of profit after tax from joint ventures and associates 29 2 12 14 – – 57 Businesses disposed – (34) (1) – – – (35) Adjusted operating profit 335 89 58 143 843 (64) 1,404 Profits less losses on disposal of non-current assets 4 2 – – – – 6 Amortisation of non-operating intangibles (36) – (1) (4) – – (41) Acquired inventory fair value adjustments (23) – – – – – (23) Transaction costs (1) – – (1) – – (2) Profits less losses on sale and closure of businesses – (11) 1 (2) – (22) (34) Profit before interest 279 80 58 136 843 (86) 1,310 Finance income 15 15 Finance expense (50) (50) Other financial income 4 4 Taxation (257) (257) Profit for the period 279 80 58 136 843 (374) 1,022

Segment assets (excluding joint ventures and associates) 2,702 2,090 414 1,396 4,556 110 11,268 Investments in joint ventures and associates 41 25 134 66 – – 266 Segment assets 2,743 2,115 548 1,462 4,556 110 11,534 Cash and cash equivalents 1,362 1,362 Current asset investments 30 30 Income tax 54 54 Deferred tax assets 133 133 Employee benefits assets 579 579 Segment liabilities (530) (429) (140) (275) (1,382) (234) (2,990) Loans and overdrafts (778) (778) Income tax (160) (160) Deferred tax liabilities (324) (324) Employee benefits liabilities (144) (144) Net assets 2,213 1,686 408 1,187 3,174 628 9,296

Non-current asset additions 148 141 19 63 533 12 916 Depreciation (99) (81) (13) (49) (264) (3) (509) Amortisation (48) (4) (1) (6) (5) (1) (65) Impairment of property, plant and equipment on sale and closure of businesses – (14) – – – – (14)

United Europe The Asia Kingdom & Africa Americas Pacific Total Geographical information £m £m £m £m £m Revenue from external customers 5,929 5,913 1,534 2,198 15,574 Segment assets 4,460 4,610 1,079 1,385 11,534 Non-current asset additions 418 375 57 66 916 Depreciation (204) (202) (43) (60) (509) Amortisation (36) (17) (6) (6) (65) Acquired inventory fair value adjustments – (23) – – (23) Impairment of property, plant and equipment on sale and closure of businesses (14) – – – (14) Transaction costs (1) – – (1) (2)

134 Associated British Foods plc Annual Report and Accounts 2019

Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

1. Operating segments continued 2. Operating costs For the 52 weeks ended 15 September 2018 2019 2018 Note £m £m Grocery Sugar Agriculture Ingredients Retail Central Total £m £m £m £m £m £m £m Operating costs Cost of sales (including amortisation of intangibles) 12,187 11,990 Revenue from continuing businesses 3,423 1,821 1,354 1,640 7,477 (279) 15,436 Distribution costs 1,356 1,356 Internal revenue (3) (91) (4) (181) – 279 – Administration expenses 981 944 External revenue from continuing businesses 3,420 1,730 1,350 1,459 7,477 – 15,436 Exceptional items 79 – Businesses disposed – 128 1 9 – – 138 14,603 14,290 Revenue from external customers 3,420 1,858 1,351 1,468 7,477 – 15,574 Operating costs are stated after charging/(crediting): Adjusted operating profit before joint ventures Employee benefits expense 2,758 2,668 and associates 306 121 47 129 843 (64) 1,382 3 Amortisation of non-operating intangibles 45 38 Share of profit after tax from joint ventures and associates 29 2 12 14 – – 57 8 Amortisation of operating intangibles 23 27 Businesses disposed – (34) (1) – – – (35) 8 Acquired inventory fair value adjustments 15 23 Adjusted operating profit 335 89 58 143 843 (64) 1,404 Profits less losses on disposal of non-current assets (4) (6) Profits less losses on disposal of non-current assets 4 2 – – – – 6 Depreciation of property, plant and equipment 9 544 509 Amortisation of non-operating intangibles (36) – (1) (4) – – (41) Transaction costs 2 2 Acquired inventory fair value adjustments (23) – – – – – (23) Effect of hyperinflationary economies 6 – Transaction costs (1) – – (1) – – (2) Operating lease payments under property leases 310 294 Profits less losses on sale and closure of businesses – (11) 1 (2) – (22) (34) Operating lease payments for hire of plant and equipment 20 15 Profit before interest 279 80 58 136 843 (86) 1,310 Other operating income (18) (18) Finance income 15 15 Research and development expenditure 30 26 Finance expense (50) (50) Fair value gains on financial assets and liabilities held for trading (11) (23) Other financial income 4 4 Fair value losses on financial assets and liabilities held for trading 12 17 Taxation (257) (257) Foreign exchange gains on operating activities (46) (45) Profit for the period 279 80 58 136 843 (374) 1,022 Foreign exchange losses on operating activities 47 57 Segment assets (excluding joint ventures and associates) 2,702 2,090 414 1,396 4,556 110 11,268 Transaction costs of £2m and amortisation of non-operating intangibles of £47m (2018 – £2m and £41m) shown as adjusting Investments in joint ventures and associates 41 25 134 66 – – 266 items in the income statement, include £nil and £2m respectively (2018 – £nil and £3m respectively) incurred by joint ventures, Segment assets 2,743 2,115 548 1,462 4,556 110 11,534 in addition to the amounts shown above. Cash and cash equivalents 1,362 1,362 Current asset investments 30 30 Exceptional items Income tax 54 54 Guaranteed Minimum Pensions Deferred tax assets 133 133 The Guaranteed Minimum Pension (GMP) is the minimum pension which a UK occupational pension scheme must provide Employee benefits assets 579 579 for those employees who were contracted out of the State Earnings-Related Pensions Scheme between 6 April 1978 and Segment liabilities (530) (429) (140) (275) (1,382) (234) (2,990) 5 April 1997. Loans and overdrafts (778) (778) Income tax (160) (160) On 26 October 2018, the High Court of Justice of England and Wales ruled that GMPs must be equalised in respect of Deferred tax liabilities (324) (324) retirement ages for men and women for all pensionable service after 17 May 1990. This affects the group’s UK defined benefit Employee benefits liabilities (144) (144) scheme and the ruling set out a number of methodologies that could be used to calculate the impact. The group has adopted Net assets 2,213 1,686 408 1,187 3,174 628 9,296 method C2 to identify its best estimate of the additional liabilities. These are charged as a past service cost in the income statement with subsequent changes accounted for in other comprehensive income. The past service cost is treated as an Non-current asset additions 148 141 19 63 533 12 916 exceptional item since the liabilities relate to employee service between 1990 and 1997 and they have no link to current Depreciation (99) (81) (13) (49) (264) (3) (509) business performance. Amortisation (48) (4) (1) (6) (5) (1) (65) Impairment of property, plant and equipment on sale The increase in liabilities is estimated at £14m, assessed using market conditions at the date of the ruling as required by IAS 19. and closure of businesses – (14) – – – – (14) Impairment

In the 2018 Annual Report, it was noted that low bread prices and strong continuing competition in the UK bakery market had led United Europe The Asia to an operating loss at Allied Bakeries and the consequent need for an assessment of impairment. Headroom at that time was Kingdom & Africa Americas Pacific Total £113m on a cash-generating unit (CGU) carrying value of £243m. Geographical information £m £m £m £m £m Revenue from external customers 5,929 5,913 1,534 2,198 15,574 In December 2018, subsequent to the publication of the 2018 Annual Report, Allied Bakeries received notice of the termination Segment assets 4,460 4,610 1,079 1,385 11,534 of its largest private label manufacturing contract. This is expected to result in a significant reduction in bread volumes from late Non-current asset additions 418 375 57 66 916 in the 2019 calendar year, with limited opportunity to mitigate this volume loss in the short term. Depreciation (204) (202) (43) (60) (509) As set out in previous annual reports, the board has been concerned about the worsening trend in the performance of Allied Amortisation (36) (17) (6) (6) (65) Bakeries and the difficulty in recovering cost increases in a highly competitive market. In light of the termination of the private Acquired inventory fair value adjustments – (23) – – (23) label contract mentioned above, management is considering courses of action to return the business to profitability. Impairment of property, plant and equipment on sale and closure of businesses (14) – – – (14) Of the methodologies available to calculate the impairment, the group has applied the “fair value less costs of disposal” Transaction costs (1) – – (1) (2) approach to identify its best estimate of the impairment. The key assumptions used in this assessment are similar to those in previous year end impairment assessments – bread volumes, bread prices and long-term growth in the market, as well as logistical and other savings from restructuring. The discount rate used was 10.9%. This assessment resulted in a shortfall of £65m compared to the CGU carrying value of £243m. A charge for this has been included as an exceptional item in the income statement and has been allocated to the property, plant and equipment of the business. There is no goodwill associated with Allied Bakeries.

134 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 135

Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

2. Operating costs continued 2019 2018 Auditor's remuneration £m £m Fees payable to the Company’s auditor and its associates in respect of the audit Group audit of these financial statements 1.3 0.8 Audit of the Company’s subsidiaries’ financial statements 6.5 6.8 Total audit remuneration 7.8 7.6

Fees payable to the Company’s auditor and its associates in respect of non-audit related services Audit-related assurance services 0.4 0.4 All other services 0.4 0.2 Total non-audit related remuneration 0.8 0.6

3. Employees 2019 2018 Average number of employees United Kingdom 48,011 48,712 Europe & Africa 71,922 70,074 The Americas 5,640 5,686 Asia Pacific 12,524 12,542 138,097 137,014

Note £m £m

Employee benefits expense Wages and salaries 2,298 2,243 Social security contributions 304 286 Contributions to defined contribution schemes 11 80 77 Charge for defined benefit schemes 11 54 43 Equity-settled share-based payment schemes 23 22 19 2,758 2,668 Details of directors’ remuneration, share incentives and pension entitlements are shown in the Remuneration report on pages 83 to 106. 4. Interest and other financial income and expense 2019 2018 Note £m £m Finance income Cash and cash equivalents 15 15 15 15 Finance expense Bank loans and overdrafts (24) (27) All other borrowings (16) (21) Finance leases (1) (1) Other payables (1) (1) (42) (50) Other financial income/(expense) Interest income on employee benefit scheme assets 11 116 107 Interest charge on employee benefit scheme liabilities 11 (102) (103) Interest charge on irrecoverable surplus 11 (1) (1) Net financial income from employee benefit schemes 13 3 Net foreign exchange (losses)/gains on financing activities (1) 1 Total other financial income 12 4

136 Associated British Foods plc Annual Report and Accounts 2019

Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

2. Operating costs continued 5. Income tax expense 2019 2018 2019 2018 Auditor's remuneration £m £m £m £m Fees payable to the Company’s auditor and its associates in respect of the audit Current tax expense Group audit of these financial statements 1.3 0.8 UK – corporation tax at 19% (2018 – 19%) 80 82 Audit of the Company’s subsidiaries’ financial statements 6.5 6.8 Overseas – corporation tax 229 200 UK – (over)/under provided in prior periods (5) 8 Total audit remuneration 7.8 7.6 Overseas – over provided in prior periods (1) (28) Fees payable to the Company’s auditor and its associates in respect of non-audit related services 303 262 Deferred tax expense Audit-related assurance services 0.4 0.4 UK deferred tax (7) – All other services 0.4 0.2 Overseas deferred tax (11) (19) Total non-audit related remuneration 0.8 0.6 UK – (over)/under provided in prior periods (5) 15 Overseas – over provided in prior periods (3) (1) 3. Employees (26) (5) 2019 2018 Total income tax expense in income statement 277 257 Average number of employees Reconciliation of effective tax rate United Kingdom 48,011 48,712 Profit before taxation 1,173 1,279 Europe & Africa 71,922 70,074 Less share of profit after tax from joint ventures and associates (57) (54) The Americas 5,640 5,686 Profit before taxation excluding share of profit after tax from joint ventures and associates 1,116 1,225 Asia Pacific 12,524 12,542 Nominal tax charge at UK corporation tax rate of 19% (2018 – 19%) 212 233 138,097 137,014 Effect of higher and lower tax rates on overseas earnings 14 29 Effect of changes in tax rates on income statement (1) (16) Expenses not deductible for tax purposes 37 33 Note £m £m Disposal of assets covered by tax exemptions or unrecognised capital losses 17 (15) Employee benefits expense Deferred tax not recognised 12 (1) Wages and salaries 2,298 2,243 Adjustments in respect of prior periods (14) (6) Social security contributions 304 286 277 257 Contributions to defined contribution schemes 80 77 11 Income tax recognised directly in equity Charge for defined benefit schemes 54 43 11 Deferred tax associated with defined benefit schemes (68) 53 Equity-settled share-based payment schemes 22 19 23 Current tax associated with defined benefit schemes (2) – 2,758 2,668 Deferred tax associated with share-based payments – 1 Details of directors’ remuneration, share incentives and pension entitlements are shown in the Remuneration report on pages Deferred tax associated with movement in cash flow hedging position (7) 12 83 to 106. Deferred tax associated with movements in foreign exchange – (1) Deferred tax associated with hyperinflationary economies 2 – 4. Interest and other financial income and expense (75) 65 2019 2018 The UK corporation tax rate of 19% (2018 –19%) will be reduced to 17% effective from 1 April 2020. The legislation to effect Note £m £m these rate changes had been enacted before the balance sheet date. Accordingly, UK deferred tax has been calculated using Finance income these rates as appropriate. Cash and cash equivalents 15 15 15 15 In April 2019 the European Commission published its decision on the Group Financing Exemption in the UK’s controlled foreign Finance expense company legislation. The Commission found that the UK law did not comply with EU State Aid rules in certain circumstances. Bank loans and overdrafts (24) (27) The group has arrangements that may be impacted by this decision as might other UK-based multinational groups that had All other borrowings (16) (21) financing arrangements in line with the UK’s legislation in force at the time. The UK Government has lodged an appeal against Finance leases (1) (1) this decision. We have calculated our maximum potential liability to be £26m however we do not consider that any provision Other payables (1) (1) is required in respect of this amount based on our current assessment of the issue. We will continue to consider the impact (42) (50) of the Commission’s decision on the group and the potential requirement to record a provision. Other financial income/(expense) Interest income on employee benefit scheme assets 11 116 107 Deferred taxation balances are analysed in note 12. Interest charge on employee benefit scheme liabilities (102) (103) 11 6. Dividends Interest charge on irrecoverable surplus 11 (1) (1) Net financial income from employee benefit schemes 13 3 2019 2018 Net foreign exchange (losses)/gains on financing activities (1) 1 pence pence 2019 2018 per share per share £m £m Total other financial income 12 4 2017 final – 29.65 – 234 2018 interim – 11.70 – 93 2018 final 33.30 – 263 – 2019 interim 12.05 – 95 – 45.35 41.35 358 327 The 2019 interim dividend was declared on 24 April 2019 and paid on5 July 2019. The 2019 final dividend of 34.3p, total value of £271m, will be paid on 10 January 2020 to shareholders on the register on 13 December 2019. Dividends relating to the period were 46.35p per share totalling £366m (2018 – 45.0p per share totalling £356m).

136 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 137

Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

7. Earnings per share The calculation of basic earnings per share at 14 September 2019 was based on the net profit attributable to equity shareholders of £878m (2018 – £1,007m), and a weighted average number of shares outstanding during the year of 790 million (2018 – 790 million). The calculation of the weighted average number of shares excludes the shares held by the Employee Share Ownership Plan Trust on which the dividends are being waived. Adjusted earnings per ordinary share, which exclude the impact of profits less losses on disposal of non-current assets and the sale and closure of businesses, amortisation of acquired inventory fair value adjustments, transaction costs, amortisation of non-operating intangibles, exceptional items and any associated tax credits, is shown to provide clarity on the underlying performance of the group. Transaction costs of £2m and amortisation of non-operating intangibles of £47m (2018 – £2m and £41m) shown as adjusting items below include £nil and £2m respectively (2018 – £nil and £3m respectively) incurred by joint ventures. The diluted earnings per share calculation takes into account the dilutive effect of share incentives. The diluted, weighted average number of shares is 790 million (2018 – 790 million). There is no difference between basic and diluted earnings.

2019 2018 £m £m Adjusted profit for the period 1,086 1,066 Disposal of non-current assets 4 6 Sale and closure of businesses (94) (34) Acquired inventory fair value adjustments (15) (23) Transaction costs (2) (2) Exceptional items (79) – Tax effect on above adjustments 15 6 Amortisation of non-operating intangibles (47) (41) Tax credit on non-operating intangibles amortisation and goodwill 10 29 Profit for the period attributable to equity shareholders 878 1,007

2019 2018 pence pence Adjusted earnings per share 137.5 134.9 Disposal of non-current assets 0.5 0.8 Sale and closure of businesses (11.9) (4.3) Acquired inventory fair value adjustments (1.9) (2.9) Transaction costs (0.3) (0.3) Exceptional items (10.0) – Tax effect on above adjustments 1.9 0.8 Amortisation of non-operating intangibles (6.0) (5.2) Tax credit on non-operating intangibles amortisation and goodwill 1.3 3.7 Earnings per ordinary share 111.1 127.5

138 Associated British Foods plc Annual Report and Accounts 2019

Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

7. Earnings per share 8. Intangible assets The calculation of basic earnings per share at 14 September 2019 was based on the net profit attributable to equity shareholders Non-operating Operating of £878m (2018 – £1,007m), and a weighted average number of shares outstanding during the year of 790 million (2018 – 790 Customer Grower million). The calculation of the weighted average number of shares excludes the shares held by the Employee Share Ownership Goodwill Technology Brands relationships agreements Other Other Total Plan Trust on which the dividends are being waived. £m £m £m £m £m £m £m £m Cost Adjusted earnings per ordinary share, which exclude the impact of profits less losses on disposal of non-current assets and At 16 September 2017 1,160 209 388 156 124 6 344 2,387 the sale and closure of businesses, amortisation of acquired inventory fair value adjustments, transaction costs, amortisation Acquisitions – externally purchased – – – – – – 98 98 of non-operating intangibles, exceptional items and any associated tax credits, is shown to provide clarity on the underlying Acquired through business combinations 100 – 5 100 – – – 205 performance of the group. Disposal of businesses (2) – – – – – – (2) Transaction costs of £2m and amortisation of non-operating intangibles of £47m (2018 – £2m and £41m) shown as adjusting Other disposals – – – – – – (9) (9) items below include £nil and £2m respectively (2018 – £nil and £3m respectively) incurred by joint ventures. Effect of movements in foreign exchange (19) (5) – 4 (10) – (4) (34) At 15 September 2018 1,239 204 393 260 114 6 429 2,645 The diluted earnings per share calculation takes into account the dilutive effect of share incentives. The diluted, weighted Acquisitions – externally purchased – – – – – – 75 75 average number of shares is 790 million (2018 – 790 million). There is no difference between basic and diluted earnings. Acquired through business combinations 30 – 39 17 – – – 86 Disposal of businesses (8) – – – – – – (8) 2019 2018 Other disposals – – – – – – (14) (14) £m £m Transfer to assets classified as held for sale – – – – – – (2) (2) Adjusted profit for the period 1,086 1,066 Effect of hyperinflationary economies 11 – – – – – – 11 Disposal of non-current assets 4 6 Effect of movements in foreign exchange 21 3 5 3 8 – 4 44 Sale and closure of businesses (94) (34) At 14 September 2019 1,293 207 437 280 122 6 492 2,837 Acquired inventory fair value adjustments (15) (23) Transaction costs (2) (2) Amortisation and impairment Exceptional items (79) – At 16 September 2017 29 209 297 110 124 6 198 973 Tax effect on above adjustments 15 6 Amortisation for the year – – 19 19 – – 27 65 Amortisation of non-operating intangibles (47) (41) Other disposals – – – – – – (3) (3) Tax credit on non-operating intangibles amortisation and goodwill 10 29 Effect of movements in foreign exchange – (5) – (3) (10) – (4) (22) Profit for the period attributable to equity shareholders 878 1,007 At 15 September 2018 29 204 316 126 114 6 218 1,013 Amortisation for the year – – 21 24 – – 23 68

Impairment on sale and closure of business 59 – – – – – – 59 2019 2018 Other disposals – – – – – – (6) (6) pence pence Effect of movements in foreign exchange 2 3 4 3 8 – 2 22 Adjusted earnings per share 137.5 134.9 At 14 September 2019 90 207 341 153 122 6 237 1,156 Disposal of non-current assets 0.5 0.8 Net book value Sale and closure of businesses (11.9) (4.3) At 16 September 2017 1,131 – 91 46 – – 146 1,414 Acquired inventory fair value adjustments (1.9) (2.9) At 15 September 2018 1,210 – 77 134 – – 211 1,632 Transaction costs (0.3) (0.3) At 14 September 2019 1,203 – 96 127 – – 255 1,681 Exceptional items (10.0) – Amortisation of non-operating intangibles of £47m (2018 – £41m) shown as an adjusting item in the income statement includes Tax effect on above adjustments 1.9 0.8 Amortisation of non-operating intangibles (6.0) (5.2) £2m (2018 – £3m) incurred by joint ventures in addition to the amounts shown above. Tax credit on non-operating intangibles amortisation and goodwill 1.3 3.7 Impairment Earnings per ordinary share 111.1 127.5 As at 14 September 2019, the consolidated balance sheet included goodwill of £1,203m (2018 – £1,210m). Goodwill is allocated to the group’s cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the business combination that gave rise to the goodwill, as follows:

2019 2018 CGU or group of CGUs Primary reporting segment Discount rate £m £m Acetum Grocery 13.0% 94 94 ACH Grocery 11.5% 186 177 AB Mauri Ingredients 12.9% 281 320 Twinings Ovaltine Grocery 10.9% 119 119 Azucarera Sugar 11.7% 24 24 Illovo Sugar 22.2% 117 110 AB World Foods Grocery 11.1% 78 78 Other (not individually significant) Various Various 304 288 1,203 1,210

138 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 139

Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

8. Intangible assets continued A CGU, or group of CGUs, to which goodwill has been allocated must be assessed for impairment annually, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. The carrying value of goodwill is assessed by reference to its value in use to perpetuity reflecting the projected cash flows of each of the CGUs or group of CGUs. These projections are based on the most recent budget, which has been approved by the board and reflects management’s expectations of sales growth, operating costs and margin, based on past experience and external sources of information. Long-term growth rates for periods not covered by the annual budget reflect the products, industries and countries in which the relevant CGU, or group of CGUs, operate. For some recently acquired intangible assets, management expects to achieve growth over the next three to five years in excess of the long-term growth rates for the applicable country or region. In these circumstances, budgeted cash flows are extended, generally to between three and five years, using specific growth assumptions and taking into account the specific business risks. The key assumptions in the most recent annual budget on which the cash flow projections are based relate to discount rates, growth rates and expected changes in volumes, selling prices and direct costs. The cash flow projections have been discounted using the group’s pre-tax weighted average cost of capital adjusted for country, industry and market risk. The rates used were between 9.2% and 22.2% (2018 – between 9.7% and 18.7%). The growth rates to perpetuity beyond the initial budgeted cash flows, applied in the value in use calculations for goodwill allocated to each of the CGUs or groups of CGUs that are significant to the total carrying amount of goodwill, were in a range between 0% and 6%, consistent with the inflation factors included in the discount rates applied (2018 – between 0% and 4%). Changes in volumes, selling prices and direct costs are based on past results and expectations of future changes in the market. Sensitivity to changes in key assumptions Impairment testing is dependent on management’s estimates and judgements, particularly as they relate to the forecasting of future cash flows, the discount rates selected and expected long-term growth rates. Each of the group’s CGUs had headroom under the annual impairment review. Conditions were difficult for Azucarera during the year as the EU sugar market continued to adjust to the consequences of the end of the EU sugar regime in 2017, when sugar sales quotas were removed. World market sugar prices continued to be low. Reduced beet prices have been contracted with growers for the 2019/20 campaign, which led to a reduction in contracted beet crop area. Management has again undertaken an impairment review. Detailed forecasts for a period of five years were prepared, to reflect the time required for implementation of the business plan, and management concluded that the assets are not impaired. Headroom was €14m on a CGU carrying value of €307m (2018 – headroom of €68m on a CGU carrying value of €360m). Estimates of long-term growth rates beyond the forecast periods were 2% (2018 – 2%). The CGU carrying value is sensitive to assumptions around sugar prices, recovery of beet crop area and discount rate. Applying sensitivities to these assumptions, a sensitivity of plus or minus 1% applied to sugar prices impacts headroom by plus or minus €9m; a change of 5% on long-term beet crop area increases or decreases the headroom by €25m; and increasing the discount rate used of 11.7% (2018 – 12%) to 12.1% causes value in use to fall below the CGU carrying value. AB Mauri continues to experience competitive pricing pressure in a number of markets around the world as well as challenging macroeconomic conditions in some markets, including high inflation rates and currency devaluations. Accordingly, management has again undertaken an impairment review. Detailed forecasts for a period of five years to reflect the time required for completion of the business plan were prepared and management concluded that the assets were not impaired. Key drivers of the forecast improvement in performance include achievement of price increases in high inflation environments, improved reach and competitiveness in the global dry yeast market, implementation of a number of margin improvement initiatives, particularly in cost reduction, and continuing growth in the global bakery ingredients business. Headroom was $361m on a CGU carrying value of $815m (2018 – headroom of $400m on a CGU carrying value of $946m). The geographic diversity and varying local economic environments of AB Mauri’s operations mean that the critical assumptions underlying the detailed forecasts used in the impairment model are wide-ranging. It is therefore impractical to provide meaningful sensitivities to these assumptions other than the discount rate. The discount rate used was 12.9% (2018 – 13.2%) and would have to increase to more than 16.8% (2018 – 17%) before value in use fell below the CGU carrying value. Estimates of long-term growth rates beyond the forecast periods were 2–3% (2018 – 2–3%) per annum dependent on location.

140 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

8. Intangible assets continued 9. Property, plant and equipment A CGU, or group of CGUs, to which goodwill has been allocated must be assessed for impairment annually, or more frequently Land and Plant and Fixtures and Assets under Sugar cane if events or circumstances indicate that the carrying amount may not be recoverable. buildings machinery fittings construction roots Total £m £m £m £m £m £m The carrying value of goodwill is assessed by reference to its value in use to perpetuity reflecting the projected cash flows of Cost each of the CGUs or group of CGUs. These projections are based on the most recent budget, which has been approved by the At 16 September 2017 2,540 3,766 3,000 218 64 9,588 board and reflects management’s expectations of sales growth, operating costs and margin, based on past experience and Acquisitions – externally purchased 112 46 413 235 12 818 external sources of information. Long-term growth rates for periods not covered by the annual budget reflect the products, Acquired through business combinations 24 13 – 6 – 43 industries and countries in which the relevant CGU, or group of CGUs, operate. Other disposals (10) (57) (25) – (1) (93) Transfers from assets under construction 23 144 9 (176) – – For some recently acquired intangible assets, management expects to achieve growth over the next three to five years in Effect of movements in foreign exchange (24) (70) 24 (7) (2) (79) excess of the long-term growth rates for the applicable country or region. In these circumstances, budgeted cash flows are At 15 September 2018 2,665 3,842 3,421 276 73 10,277 extended, generally to between three and five years, using specific growth assumptions and taking into account the specific Acquisitions – externally purchased 58 47 326 212 14 657 business risks. Acquired through business combinations 7 13 – – – 20 The key assumptions in the most recent annual budget on which the cash flow projections are based relate to discount rates, Businesses disposed (2) (20) – – – (22) Other disposals (9) (66) (6) – – (81) growth rates and expected changes in volumes, selling prices and direct costs. Transfers from assets under construction 52 148 27 (227) – – The cash flow projections have been discounted using the group’s pre-tax weighted average cost of capital adjusted for country, Transfer to assets classified as held for sale (17) (37) (1) – – (55) industry and market risk. The rates used were between 9.2% and 22.2% (2018 – between 9.7% and 18.7%). Effect of hyperinflationary economies – 7 – – – 7 Effect of movements in foreign exchange 5 33 10 1 – 49 The growth rates to perpetuity beyond the initial budgeted cash flows, applied in the value in use calculations for goodwill At 14 September 2019 2,759 3,967 3,777 262 87 10,852 allocated to each of the CGUs or groups of CGUs that are significant to the total carrying amount of goodwill, were in a range between 0% and 6%, consistent with the inflation factors included in the discount rates applied (2018 – between 0% and 4%). Depreciation and impairment At 16 September 2017 601 2,260 1,232 – 25 4,118 Changes in volumes, selling prices and direct costs are based on past results and expectations of future changes in the market. Depreciation for the year 48 198 255 – 8 509 Sensitivity to changes in key assumptions Impairment on closure of business – 14 – – – 14 Impairment testing is dependent on management’s estimates and judgements, particularly as they relate to the forecasting of Other disposals (8) (49) (23) – (1) (81) Effect of movements in foreign exchange (4) (28) 2 – – (30) future cash flows, the discount rates selected and expected long-term growth rates. Each of the group’s CGUs had headroom At 15 September 2018 637 2,395 1,466 – 32 4,530 under the annual impairment review. Depreciation for the year 46 194 296 – 8 544 Conditions were difficult for Azucarera during the year as the EU sugar market continued to adjust to the consequences of the Impairment 3 59 3 – – 65 end of the EU sugar regime in 2017, when sugar sales quotas were removed. World market sugar prices continued to be low. Impairment on sale and closure of business 11 19 2 – – 32 Reduced beet prices have been contracted with growers for the 2019/20 campaign, which led to a reduction in contracted beet Businesses disposed (1) (17) – – – (18) crop area. Management has again undertaken an impairment review. Detailed forecasts for a period of five years were prepared, Other disposals (7) (60) (6) – – (73) Transfer to assets classified as held for sale (4) (22) – – – (26) to reflect the time required for implementation of the business plan, and management concluded that the assets are not Effect of movements in foreign exchange 5 17 7 – – 29 impaired. Headroom was €14m on a CGU carrying value of €307m (2018 – headroom of €68m on a CGU carrying value of At 14 September 2019 690 2,585 1,768 – 40 5,083 €360m). Estimates of long-term growth rates beyond the forecast periods were 2% (2018 – 2%). The CGU carrying value is Net book value sensitive to assumptions around sugar prices, recovery of beet crop area and discount rate. Applying sensitivities to these At 16 September 2017 1,939 1,506 1,768 218 39 5,470 assumptions, a sensitivity of plus or minus 1% applied to sugar prices impacts headroom by plus or minus €9m; a change At 15 September 2018 2,028 1,447 1,955 276 41 5,747 of 5% on long-term beet crop area increases or decreases the headroom by €25m; and increasing the discount rate used At 14 September 2019 2,069 1,382 2,009 262 47 5,769 of 11.7% (2018 – 12%) to 12.1% causes value in use to fall below the CGU carrying value.

AB Mauri continues to experience competitive pricing pressure in a number of markets around the world as well as challenging 2019 2018 macroeconomic conditions in some markets, including high inflation rates and currency devaluations. Accordingly, management £m £m has again undertaken an impairment review. Detailed forecasts for a period of five years to reflect the time required for Net book value of finance lease assets 12 12 completion of the business plan were prepared and management concluded that the assets were not impaired. Key drivers of Land and buildings at net book value comprise: the forecast improvement in performance include achievement of price increases in high inflation environments, improved reach – freehold 1,673 1,619 and competitiveness in the global dry yeast market, implementation of a number of margin improvement initiatives, particularly – long leasehold 111 121 in cost reduction, and continuing growth in the global bakery ingredients business. Headroom was $361m on a CGU carrying – short leasehold 285 288 value of $815m (2018 – headroom of $400m on a CGU carrying value of $946m). The geographic diversity and varying local 2,069 2,028 economic environments of AB Mauri’s operations mean that the critical assumptions underlying the detailed forecasts used in Capital expenditure commitments – contracted but not provided for 469 625 the impairment model are wide-ranging. It is therefore impractical to provide meaningful sensitivities to these assumptions other than the discount rate. The discount rate used was 12.9% (2018 – 13.2%) and would have to increase to more than 16.8% Land and buildings at net book value classified as held for sale comprise £13m of freehold. (2018 – 17%) before value in use fell below the CGU carrying value. Estimates of long-term growth rates beyond the forecast The net book value of short and long leasehold land and buildings has been re-analysed in the current year. Prior year balances periods were 2–3% (2018 – 2–3%) per annum dependent on location. have been re-presented in line with this change.

140 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 141 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

9. Property, plant and equipment continued Impairment The methodology used to assess property, plant and equipment for impairment is the same as that described for impairment assessments of goodwill. See note 8 for further details. In 2018 low bread prices and strong continuing competition in the UK bakery market led to an operating loss at Allied Bakeries and the consequent need for an assessment of impairment. In December 2018, Allied Bakeries received notice of the termination of its largest private label manufacturing contract. This is expected to result in a significant reduction in bread volumes from late in the 2019 calendar year, with limited opportunity to mitigate this volume loss in the short term. Accordingly, a detailed impairment assessment was performed in the first half of 2019. Of the methodologies available to calculate the impairment, thegroup applied the “fair value less costs of disposal” approach to identify its best estimate of the impairment. This method uses inputs that are unobservable, using the best information available in the circumstances for valuing the CGU, and therefore falls into the level 3 category of fair value measurement. The key assumptions used in this assessment were bread volumes, bread prices and long-term growth in the market, discount rates, as well as logistical and other savings from restructuring. The discount rate used was 10.9%. This assessment resulted in a shortfall of £65m compared to the CGU carrying value. A charge for this hasbeen included as an exceptional item in the income statement and has been allocated to the property, plant and equipment of the business. There is no goodwill associated with Allied Bakeries. At year end, management assessed whether the assumptions under the “fair value less costs of disposal” model were still appropriate and concluded that they were, as was the charge of £65m. Headroom was £9m on a CGU carrying value of £160m (2018 – headroom of £113m on a CGU carrying value of £243m). Estimates of long-term growth rate beyond the forecast periods were 0.4% per annum. A sensitivity of plus or minus 1% applied to bread prices impacts headroom by plus or minus £12m. A sensitivity of plus or minus 1% applied to bread volumes impacts headroom by plus or minus £8m. A poor beet crop together with low domestic sugar prices led to a loss in AB Sugar China and resulted in the need for an assessment of impairment. There is no goodwill associated with AB Sugar China. Detailed forecasts for a period of five years were prepared, to reflect the time required for implementation of the business plan, and management concluded that the assets were not impaired. Headroom was £14m on a CGU carrying value of £81m. Estimates of long-term growth rates beyond the forecast periods were 2%. The discount rate used was 11.9% and would have to increase to 13.3% before the value in use fell below the carrying value. Key assumptions include the Chinese domestic sugar sales price, beet purchase price and beet volume, with a recovery in beet quality with grower payments being increasingly linked to the sugar content of beet. Applying sensitivities to these assumptions, a sensitivity of plus or minus 2% in the sugar sales price impacts headroom by plus or minus £14m; a sensitivity of plus or minus 5% on beet price would impact headroom by plus or minus £22m; and a change of 1% on long term beet crop area increases or decreases the headroom by £10m. An impairment of A$150m (£98m) was recorded in 2012 in the Australian meat business. Further progress was made in the current year with lower procurement costs, price increase in food service and a general focus on cost reduction across the business. Following a detailed assessment, management has concluded that the carrying value of the assets in the meat business is not further impaired. Headroom was A$120m on a CGU carrying value of A$304m (2018 – headroom of A$41m on a CGU carrying value of A$248m). The discount rate used was 10.4% (2018 – 11.1%). Estimates of long-term growth rates beyond the forecast periods were 2.0% (2018 – 2.0%) per annum. A sensitivity of plus or minus 1% applied to the discount rate impacts headroom by plus or minus A$63m. 10. Investments in joint ventures and associates Joint ventures Associates £m £m At 16 September 2017 210 44 Profit for the period 45 9 Dividends received (36) (6) At 15 September 2018 219 47 Profit for the period 49 8 Dividends received (45) (7) Effect of movements in foreign exchange 2 2 At 14 September 2019 225 50 Details of joint ventures and associates are listed in note 29. Included in the consolidated financial statements are the following items that represent the group’s share of the assets, liabilities and profit of joint ventures and associates: Joint ventures Associates 2019 2018 2019 2018 £m £m £m £m Non-current assets 149 148 22 20 Current assets 383 405 188 223 Current liabilities (259) (280) (157) (193) Non-current liabilities (67) (73) (4) (4) Goodwill 19 19 1 1 Net assets 225 219 50 47

Revenue 1,507 1,443 589 689

Profit for the period 49 45 8 9 142 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

9. Property, plant and equipment continued 11. Employee entitlements Impairment The group operates a number of defined benefit and defined contribution retirement benefit schemes in the UK and overseas. The methodology used to assess property, plant and equipment for impairment is the same as that described for impairment The defined benefit schemes expose the group to a variety of actuarial risks including demographic assumptions such as assessments of goodwill. See note 8 for further details. mortality and financial assumptions such as discount rate, inflation risk and market (investment) risk. The group is not exposed In 2018 low bread prices and strong continuing competition in the UK bakery market led to an operating loss at Allied to any unusual, entity-specific or scheme-specific risks. All schemes comply with local legislative requirements. Bakeries and the consequent need for an assessment of impairment. In December 2018, Allied Bakeries received notice of UK defined benefit scheme the termination of its largest private label manufacturing contract. This is expected to result in a significant reduction in bread The group’s principal UK defined benefit scheme is the Associated British Foods Pension Scheme (the ‘Scheme’), which is volumes from late in the 2019 calendar year, with limited opportunity to mitigate this volume loss in the short term. Accordingly, a funded final salary scheme that is closed to new members. Defined contribution arrangements are in place for other employees. a detailed impairment assessment was performed in the first half of 2019. The UK defined benefit schemes represent 91% (2018 – 91%) of the group’s defined benefit scheme assets and 87% Of the methodologies available to calculate the impairment, thegroup applied the “fair value less costs of disposal” approach (2018 – 88%) of defined benefit scheme liabilities. The Scheme is governed by a trustee board which is independent of the to identify its best estimate of the impairment. This method uses inputs that are unobservable, using the best information group and which agrees a schedule of contributions with the Company each time a formal funding valuation is performed. available in the circumstances for valuing the CGU, and therefore falls into the level 3 category of fair value measurement. The key assumptions used in this assessment were bread volumes, bread prices and long-term growth in the market, discount rates, as The most recent triennial funding valuation of the Scheme was carried out as at 5 April 2017, using the current unit method, well as logistical and other savings from restructuring. The discount rate used was 10.9%. This assessment resulted in a shortfall and revealed a surplus of £176m. The market value of the Scheme assets was £3,789m, representing 105% of members' of £65m compared to the CGU carrying value. A charge for this hasbeen included as an exceptional item in the income statement accrued benefits after allowing for expected future salary increases. and has been allocated to the property, plant and equipment of the business. There is no goodwill associated with Allied Bakeries. The Scheme’s assets are managed using a risk-controlled investment strategy, which includes a liability-driven investment At year end, management assessed whether the assumptions under the “fair value less costs of disposal” model were still policy that seeks to match, where appropriate, the profile of the liabilities. This includes the use of derivative instruments to appropriate and concluded that they were, as was the charge of £65m. Headroom was £9m on a CGU carrying value of £160m hedge inflation, interest and foreign exchange risks. The Scheme utilises both market and solvency triggers to develop the (2018 – headroom of £113m on a CGU carrying value of £243m). Estimates of long-term growth rate beyond the forecast level of hedges in place. To date, the Scheme is fully hedged for 71% of inflation sensitivity and 29% of interest rate risk. periods were 0.4% per annum. A sensitivity of plus or minus 1% applied to bread prices impacts headroom by plus or minus It is intended to hedge 80% of total exposure. £12m. A sensitivity of plus or minus 1% applied to bread volumes impacts headroom by plus or minus £8m. The Scheme is forbidden by the trust deed from holding direct investments in the equity of the Company, although it is possible A poor beet crop together with low domestic sugar prices led to a loss in AB Sugar China and resulted in the need for an that the Scheme may hold indirect interests through investments in some equity funds. assessment of impairment. There is no goodwill associated with AB Sugar China. Detailed forecasts for a period of five years were prepared, to reflect the time required for implementation of the business plan, and management concluded that the assets The Guaranteed Minimum Pension (GMP) is the minimum pension which a UK occupational pension scheme must provide were not impaired. Headroom was £14m on a CGU carrying value of £81m. Estimates of long-term growth rates beyond the for those employees who were contracted out of the State Earnings-Related Pension Scheme between 6 April 1978 and forecast periods were 2%. The discount rate used was 11.9% and would have to increase to 13.3% before the value in use 5 April 1997. fell below the carrying value. Key assumptions include the Chinese domestic sugar sales price, beet purchase price and beet volume, with a recovery in beet quality with grower payments being increasingly linked to the sugar content of beet. Applying On 26 October 2018, the High Court of Justice of England and Wales ruled that GMPs must be equalised in respect of sensitivities to these assumptions, a sensitivity of plus or minus 2% in the sugar sales price impacts headroom by plus or minus retirement ages for men and women for all pensionable service after 17 May 1990. This affects the group’s UK defined benefit £14m; a sensitivity of plus or minus 5% on beet price would impact headroom by plus or minus £22m; and a change of 1% on scheme and the ruling set out a number of methodologies that could be used to calculate the impact. The group has adopted long term beet crop area increases or decreases the headroom by £10m. method C2 to identify its best estimate of the additional liabilities. These are charged as a past service cost in the income statement with subsequent changes accounted for in other comprehensive income. The past service cost is treated as an An impairment of A$150m (£98m) was recorded in 2012 in the Australian meat business. Further progress was made in the current year with lower procurement costs, price increase in food service and a general focus on cost reduction across the exceptional item since the liabilities relate to employee service between 1990 and 1997 and they have no link to current business. Following a detailed assessment, management has concluded that the carrying value of the assets in the meat business performance. business is not further impaired. Headroom was A$120m on a CGU carrying value of A$304m (2018 – headroom of A$41m The increase in liabilities is estimated at £14m, assessed using market conditions at the date of the ruling as required by IAS 19. on a CGU carrying value of A$248m). The discount rate used was 10.4% (2018 – 11.1%). Estimates of long-term growth rates beyond the forecast periods were 2.0% (2018 – 2.0%) per annum. A sensitivity of plus or minus 1% applied to the discount rate Overseas defined benefit schemes impacts headroom by plus or minus A$63m. The group also operates defined benefit retirement schemes in a number of overseas businesses, which are primarily funded final salary schemes, as well as a small number of unfunded post-retirement medical benefit schemes, which are accounted 10. Investments in joint ventures and associates for in the same way as defined benefit retirement schemes. Joint ventures Associates £m £m Defined contribution schemes At 16 September 2017 210 44 The group operates a number of defined contribution schemes for which the charge was £39m in the UK and £41m overseas, Profit for the period 45 9 totalling £80m (2018 – UK £37m, overseas £40m, totalling £77m). Dividends received (36) (6) At 15 September 2018 219 47 Actuarial assumptions Profit for the period 49 8 The principal actuarial assumptions for the group’s defined benefit schemes at the year end were: Dividends received (45) (7) 2019 2019 2018 2018 Effect of movements in foreign exchange 2 2 UK Overseas UK Overseas At 14 September 2019 225 50 % % % % Details of joint ventures and associates are listed in note 29. Discount rate 2.0 0.1-13.7 2.9 1.0-11.3 Inflation 2.3-3.3 0-15.0 2.3-3.3 0-11.9 Included in the consolidated financial statements are the following items that represent the group’s share of the assets, liabilities Rate of increase in salaries 3.3-4.3 0-20.0 3.3-4.3 0-13.0 and profit of joint ventures and associates: Rate of increase for pensions in payment 2.1-3.1 0-28.0 2.1-3.1 0-5.6 Joint ventures Associates Rate of increase for pensions in deferment (where provided) 2.3 0-2.0 2.3 0-2.0 2019 2018 2019 2018 £m £m £m £m The UK inflation assumption includes assumptions on both the Retail Price Index and Consumer Price Index measures of Non-current assets 149 148 22 20 inflation on the basis that the gap between the two measures is expected to remain stable in the long term. Current assets 383 405 188 223 Current liabilities (259) (280) (157) (193) Non-current liabilities (67) (73) (4) (4) Goodwill 19 19 1 1 Net assets 225 219 50 47

Revenue 1,507 1,443 589 689

Profit for the period 49 45 8 9 142 Associated British Foods plc Annual Report and Accounts 2019 143Annual Report Associated and Accounts British 2019 Foods plc AssociatedAnnual British Report Foods and plcAccounts 2019143 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

11. Employee entitlements continued The mortality assumptions used to value the UK defined benefit schemes in both years are derived from the S2 mortality tables with improvements in line with the 2017 projection model (2018 – 2016 projection model) prepared by the Continuous Mortality Investigation of the UK actuarial profession, with a +0.5-year rating up for males and a +0.3-year rating down for females (2018 – +0.5-year rating up for males and a +0.3-year rating down for females), both with a long-term trend of 1.5% (2018 – 1.5%). These mortality assumptions take account of experience to date, and assumptions for further improvements in life expectancy of scheme members. Examples of the resulting life expectancies in the UK defined benefit schemes are as follows:

2019 2018 Life expectancy from age 65 (in years) Male Female Male Female Member aged 65 in 2019 (2018) 21.8 24.5 21.9 24.5 Member aged 65 in 2039 (2038) 23.5 26.3 23.7 26.4 An allowance has been made for cash commutation in line with emerging scheme experience. Other demographic assumptions for the UK defined benefit schemes are set having regard to the latest trends in scheme experience and other relevant data. The assumptions are reviewed and updated as necessary as part of the periodic funding valuation of the schemes. For the overseas schemes, regionally appropriate assumptions for mortality, financial and demographic factors have been used. A sensitivity analysis on the principal assumptions used to measure UK defined benefit scheme liabilities at 14 September 2019 is:

Change in assumption Impact on scheme liabilities Discount rate decrease/increase by 0.5% increase by 9.5%/decrease by 8.4% Inflation increase/decrease by 0.5% increase by 7.0%/decrease by 6.4% Rate of real increase in salaries increase/decrease by 0.5% increase/decrease by 1.5% Rate of mortality reduce by one year increase by 3.9% A sensitivity to the rate of increase in pensions in payment and pensions in deferment is represented by the inflation sensitivity, as all pensions increases and deferred revaluations are linked to inflation. The sensitivity analysis above has been determined based on reasonably possible changes in the respective assumptions occurring at the end of the period and may not be representative of the actual change. It is based on a change in the specific assumption while holding all other assumptions constant. When calculating the sensitivities, the same method used to calculate scheme liabilities recognised in the balance sheet has been applied. The method and assumptions used in preparing the sensitivity analysis have not changed since the prior year. Balance sheet 2019 2018 UK Overseas Total UK Overseas Total £m £m £m £m £m £m Equities 1,346 180 1,526 1,355 180 1,535 Government bonds 693 51 744 530 47 577 Corporate and other bonds 433 67 500 393 58 451 Property 350 23 373 343 21 364 Cash and other assets 1,000 63 1,063 1,093 62 1,155 Scheme assets 3,822 384 4,206 3,714 368 4,082 Scheme liabilities (3,640) (524) (4,164) (3,184) (446) (3,630) Aggregate net surplus/(deficit) 182 (140) 42 530 (78) 452 Irrecoverable surplus* – (9) (9) – (17) (17) Net pension asset/(liability) 182 (149) 33 530 (95) 435

Analysed as Schemes in surplus 220 8 228 571 8 579 Schemes in deficit (38) (157) (195) (41) (103) (144) 182 (149) 33 530 (95) 435

Unfunded liability included in the present value of scheme liabilities above (38) (67) (105) (41) (56) (97)

* The surpluses in the plans are only recoverable to the extent that the group can benefit from either refunds formally agreed or from future contribution reductions. Corporate and other bonds relating to UK schemes of £433m (2018 – £393m) include £nil (2018 – £13m) of assets whose valuation is not derived from quoted market prices. The valuation for all other equity assets, government bonds, corporate and other bonds is derived from quoted market prices. The carrying value of UK property assets is based on a 31 March market valuation, adjusted for purchases, disposals and price indexation between the valuation and the balance sheet dates. Cash and other assets contains £514m (2018 – £401m) of assets whose valuation is not derived from quoted market prices. For financial reporting in the group’s financial statements, liabilities are assessed by actuaries using the projected unit method. The accounting value is different from the result obtained using the funding basis, mainly due to different assumptions used to project scheme liabilities.

144 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

11. Employee entitlements continued 11. Employee entitlements continued The mortality assumptions used to value the UK defined benefit schemes in both years are derived from the S2 mortality tables The defined benefit scheme liabilities comprise 30% (2018 – 27%) in respect of active participants, 21% (2018 – 20%) for with improvements in line with the 2017 projection model (2018 – 2016 projection model) prepared by the Continuous Mortality deferred participants and 49% (2018 – 53%) for pensioners. Investigation of the UK actuarial profession, with a +0.5-year rating up for males and a +0.3-year rating down for females The weighted average duration of the defined benefit scheme liabilities at the end of the year is 18 years for both UK and (2018 – +0.5-year rating up for males and a +0.3-year rating down for females), both with a long-term trend of 1.5% (2018 – overseas schemes (2018 – 18 years for both UK and overseas schemes). 1.5%). These mortality assumptions take account of experience to date, and assumptions for further improvements in life expectancy of scheme members. Examples of the resulting life expectancies in the UK defined benefit schemes are as follows: Income statement The charge to the income statement for employee benefit schemes comprises: 2019 2018 Life expectancy from age 65 (in years) Male Female Male Female 2019 2018 £m £m Member aged 65 in 2019 (2018) 21.8 24.5 21.9 24.5 Member aged 65 in 2039 (2038) 23.5 26.3 23.7 26.4 Charged to operating profit: Defined benefit schemes An allowance has been made for cash commutation in line with emerging scheme experience. Other demographic assumptions Current service cost (41) (44) for the UK defined benefit schemes are set having regard to the latest trends in scheme experience and other relevant data. Past service cost (13) 1 The assumptions are reviewed and updated as necessary as part of the periodic funding valuation of the schemes. Defined contribution schemes (80) (77) Total operating cost (134) (120) For the overseas schemes, regionally appropriate assumptions for mortality, financial and demographic factors have been used. Reported in other financial income/(expense): A sensitivity analysis on the principal assumptions used to measure UK defined benefit scheme liabilities at 14 September 2019 is: Net interest income on the net pension asset 14 4 Interest charge on irrecoverable surplus (1) (1) Change in assumption Impact on scheme liabilities Net impact on profit before tax (121) (117) Discount rate decrease/increase by 0.5% increase by 9.5%/decrease by 8.4% Inflation increase/decrease by 0.5% increase by 7.0%/decrease by 6.4% Cash flow Rate of real increase in salaries increase/decrease by 0.5% increase/decrease by 1.5% Group cash flow in respect of employee benefits schemes comprises contributions paid to funded schemes of £36m Rate of mortality reduce by one year increase by 3.9% (2018 – £37m) and benefits paid in respect of unfunded schemes of £14m (2018 – £2m). Contributions to funded defined benefit schemes are subject to periodic review. Contributions to defined contribution schemes amounted to £80m (2018 – £77m). A sensitivity to the rate of increase in pensions in payment and pensions in deferment is represented by the inflation sensitivity, as all pensions increases and deferred revaluations are linked to inflation. Total contributions to funded schemes and benefit payments bythe group in respect of unfunded schemes in 2020 are currently expected to be approximately £30m in the UK and £10m overseas, totalling £40m (2018 – UK £32m, overseas £9m, totalling £41m). The sensitivity analysis above has been determined based on reasonably possible changes in the respective assumptions occurring at the end of the period and may not be representative of the actual change. It is based on a change in the specific Other comprehensive income assumption while holding all other assumptions constant. When calculating the sensitivities, the same method used to calculate Remeasurements of the net asset recognised in other comprehensive income are as follows: scheme liabilities recognised in the balance sheet has been applied. The method and assumptions used in preparing the 2019 2018 sensitivity analysis have not changed since the prior year. £m £m Balance sheet Return on scheme assets excluding amounts included in net interest in the income statement 119 113 Actuarial (losses)/gains arising from changes in financial assumptions (585) 135 2019 2018 Actuarial gains arising from changes in demographic assumptions 28 49 UK Overseas Total UK Overseas Total Experience gains on scheme liabilities 20 21 £m £m £m £m £m £m Change in unrecognised surplus 11 (8)

Equities 1,346 180 1,526 1,355 180 1,535 Remeasurements of the net pension asset (407) 310 Government bonds 693 51 744 530 47 577 Corporate and other bonds 433 67 500 393 58 451 Reconciliation of change in assets and liabilities Property 350 23 373 343 21 364 2019 2018 2019 2018 2019 2018 Cash and other assets 1,000 63 1,063 1,093 62 1,155 assets assets liabilities liabilities net net Scheme assets 3,822 384 4,206 3,714 368 4,082 £m £m £m £m £m £m Scheme liabilities (3,640) (524) (4,164) (3,184) (446) (3,630) At beginning of year 4,082 4,046 (3,630) (3,910) 452 136 Aggregate net surplus/(deficit) 182 (140) 42 530 (78) 452 Current service cost – – (41) (44) (41) (44) Irrecoverable surplus* – (9) (9) – (17) (17) Employee contributions 9 9 (9) (9) – – Net pension asset/(liability) 182 (149) 33 530 (95) 435 Employer contributions 50 37 – – 50 37 Benefit payments (179) (230) 179 232 – 2 Analysed as Past service cost – – (13) 1 (13) 1 Schemes in surplus 220 8 228 571 8 579 Interest income/(expense) 116 107 (102) (103) 14 4 Schemes in deficit (38) (157) (195) (41) (103) (144) Return on scheme assets less interest income 119 113 – – 119 113 182 (149) 33 530 (95) 435 Actuarial (losses)/gains arising from changes in financial assumptions – – (585) 135 (585) 135 Actuarial gains arising from changes in demographic assumptions – – 28 49 28 49 Unfunded liability included in the present Experience gains on scheme liabilities – – 20 21 20 21 value of scheme liabilities above (38) (67) (105) (41) (56) (97) Businesses acquired – – (1) – (1) – Effect of movements in foreign exchange 9 – (10) (2) (1) (2) * The surpluses in the plans are only recoverable to the extent that the group can benefit from either refunds formally agreed or from future contribution reductions. At end of year 4,206 4,082 (4,164) (3,630) 42 452 Corporate and other bonds relating to UK schemes of £433m (2018 – £393m) include £nil (2018 – £13m) of assets whose valuation is not derived from quoted market prices. The valuation for all other equity assets, government bonds, corporate and other bonds is derived from quoted market prices. The carrying value of UK property assets is based on a 31 March market valuation, adjusted for purchases, disposals and price indexation between the valuation and the balance sheet dates. Cash and other assets contains £514m (2018 – £401m) of assets whose valuation is not derived from quoted market prices. For financial reporting in the group’s financial statements, liabilities are assessed by actuaries using the projected unit method. The accounting value is different from the result obtained using the funding basis, mainly due to different assumptions used to project scheme liabilities.

144 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 145 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

11. Employee entitlements continued Reconciliation of change in irrecoverable surplus 2019 2018 £m £m At beginning of year (17) (10) Change recognised in other comprehensive income 11 (8) Interest charge on irrecoverable surplus (1) (1) Effect of movements in foreign exchange (2) 2 At end of year (9) (17)

12. Deferred tax assets and liabilities Property, Financial Other Tax value of plant and Intangible Employee assets and temporary carry-forward equipment assets benefits liabilities differences losses Total £m £m £m £m £m £m £m At 16 September 2017 133 86 16 (7) (102) (38) 88 Amount charged/(credited) to the income statement 27 (3) – – (17) 4 11 Amount charged/(credited) to equity – – 54 12 (1) – 65 Acquired through business combinations 1 23 – – 16 – 40 Effect of changes in tax rates on income statement (9) (18) – – 11 – (16) Effect of movements in foreign exchange (1) 1 – – 1 2 3 At 15 September 2018 151 89 70 5 (92) (32) 191 Amount credited to the income statement (16) (3) (1) – (4) (2) (26) Amount credited to equity – – (68) (7) – – (75) Acquired through business combinations – 7 – – – – 7 Effect of changes in tax rates on income statement 1 – – – (2) – (1) Effect of hyperinflationary economies taken to operating profit 1 – – – – – 1 Effect of hyperinflationary economies taken to other comprehensive income 2 – – – – – 2 Effect of movements in foreign exchange 3 2 (1) – (2) – 2 At 14 September 2019 142 95 – (2) (100) (34) 101 Certain deferred tax assets and liabilities have been offset in the table above. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

2019 2018 £m £m Deferred tax assets (160) (133) Deferred tax liabilities 261 324 101 191 The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned. Other deferred tax assets totalling £95m (2018 – £101m) have not been recognised on the basis that their future economic benefit is not probable. In addition, there are temporary differences of £3,136m (2018 – £3,327m) relating to investments in subsidiaries. No deferred tax has been provided in respect of these differences, since the timing of the reversals can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

146 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

11. Employee entitlements continued 13. Trade and other receivables Reconciliation of change in irrecoverable surplus 2019 2018 £m £m 2019 2018 £m £m Non-current – other receivables At beginning of year (17) (10) Loans and receivables 44 46 Change recognised in other comprehensive income 11 (8) Other non-current investments 7 4 Interest charge on irrecoverable surplus (1) (1) 51 50 Effect of movements in foreign exchange (2) 2 Current – trade and other receivables At end of year (9) (17) Trade receivables 1,080 1,074 Other receivables 150 147 12. Deferred tax assets and liabilities Accrued income 14 20 Property, Financial Other Tax value of 1,244 1,241 plant and Intangible Employee assets and temporary carry-forward Prepayments and other non-financial receivables 192 195 equipment assets benefits liabilities differences losses Total 1,436 1,436 £m £m £m £m £m £m £m At 16 September 2017 133 86 16 (7) (102) (38) 88 In addition to the amounts disclosed above, there are £6m of trade and other receivables classified as assets held for sale Amount charged/(credited) to the income statement 27 (3) – – (17) 4 11 (see note 14). Amount charged/(credited) to equity – – 54 12 (1) – 65 The directors consider that the carrying amount of receivables approximates fair value. Acquired through business combinations 1 23 – – 16 – 40 Effect of changes in tax rates on income statement (9) (18) – – 11 – (16) For details of credit risk exposure on trade and other receivables, see note 25. Effect of movements in foreign exchange (1) 1 – – 1 2 3 At 15 September 2018 151 89 70 5 (92) (32) 191 Trade and other receivables include £44m (2018 – £47m) in respect of finance lease receivables, with £39m in non-current Amount credited to the income statement (16) (3) (1) – (4) (2) (26) loans and receivables and £5m in current other receivables (2018 – £42m in non-current loans and receivables and £5m in Amount credited to equity – – (68) (7) – – (75) current other receivables). Minimum lease payments receivable are £5m within one year, £18m between one and five years Acquired through business combinations – 7 – – – – 7 and £21m in more than five years (2018 – £5m within one year, £20m between one and five years and £25m in more than Effect of changes in tax rates on income statement 1 – – – (2) – (1) five years). Effect of hyperinflationary economies taken The finance lease receivables relate to property, plant and equipment leased to a joint venture of the group (see note 28). to operating profit 1 – – – – – 1 Effect of hyperinflationary economies taken to other 14. Assets and liabilities classified as held for sale comprehensive income 2 – – – – – 2 In the summer we signed an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International, Effect of movements in foreign exchange 3 2 (1) – (2) – 2 with completion subject to regulatory approval. The joint venture will see us build a major new low-cost yeast plant in the At 14 September 2019 142 95 – (2) (100) (34) 101 north east of China and will combine AB Mauri’s existing commercial activities and technical expertise in China with Wilmar’s Certain deferred tax assets and liabilities have been offset in the table above. The following is the analysis of the deferred tax extensive sales and distribution capability. As a consequence, the businesses have been classified as a disposal group at year balances (after offset) for financial reporting purposes: end. It does not qualify as a discontinued operation. 2019 2018 2019 £m £m £m Deferred tax assets (160) (133) Assets classified as held for sale Deferred tax liabilities 261 324 Intangible assets 2 101 191 Property, plant and equipment 29 Inventories 6 The recoverability of deferred tax assets is supported by the expected level of future profits in the countries concerned. Other Trade and other receivables 6 deferred tax assets totalling £95m (2018 – £101m) have not been recognised on the basis that their future economic benefit 43 is not probable. Liabilities classified as held for sale Trade and other payables 6 In addition, there are temporary differences of £3,136m (2018 – £3,327m) relating to investments in subsidiaries. No deferred 6 tax has been provided in respect of these differences, since the timing of the reversals can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 15. Inventories 2019 2018 £m £m Raw materials and consumables 387 361 Work in progress 69 87 Finished goods and goods held for resale 1,930 1,739 2,386 2,187 Write-down of inventories (115) (107)

In addition to the amounts disclosed above, there are £6m of inventories classified as assets held for sale (see note 14).

146 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 147 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

16. Biological assets Growing cane Other Total £m £m £m At 16 September 2017 77 13 90 Transferred to inventory (75) (18) (93) Purchases – 1 1 Changes in fair value 76 12 88 Effect of movements in foreign exchange (2) – (2) At 15 September 2018 76 8 84 Transferred to inventory (65) (14) (79) Purchases – 1 1 Changes in fair value 70 9 79 Effect of movements in foreign exchange (1) – (1) At 14 September 2019 80 4 84

Growing cane The fair value of growing cane is determined using inputs thatare unobservable, using the best information available in the circumstances for valuing the growing cane, and therefore falls into the level 3 category of fair value measurement. The following assumptions were used in the determination of the estimated sucrose tonnage at 14 September 2019:

South Africa Malawi Zambia Eswatini Tanzania Mozambique Expected area to harvest (hectares) 7,401 18,545 15,843 8,704 9,307 5,724 Estimated yield (tonnes cane/hectare) 67.8 105.0 121.9 101.6 74.9 83.0 Average maturity of growing cane 49.9% 67.4% 65.7% 67.0% 46.2% 71.6% The following assumptions were used in the determination of the estimated sucrose tonnage at 15 September 2018:

South Africa Malawi Zambia Eswatini Tanzania Mozambique Expected area to harvest (hectares) 6,517 18,363 15,848 8,609 9,426 5,875 Estimated yield (tonnes cane/hectare) 69.0 97.7 119.0 102.1 74.8 82.1 Average maturity of growing cane 46.4% 68.2% 65.7% 67.7% 46.2% 71.6% A 1% change in the unobservable inputs could increase or decrease the fair value of growing cane as follows:

2019 2018 +1% -1% +1% -1% £m £m £m £m Estimated sucrose content 1.1 (1.1) 1.1 (1.1) Estimated sucrose price 1.4 (1.4) 1.4 (1.4)

17. Cash and cash equivalents 2019 2018 Note £m £m Cash Cash at bank and in hand 643 658 Cash equivalents 852 704 Cash and cash equivalents 25 1,495 1,362 Reconciliation to the cash flow statement Bank overdrafts 18 (137) (91) Cash and cash equivalents in the cash flow statement 1,358 1,271 Cash at bank and in hand generally earns interest at rates based on the daily bank deposit rate. Cash equivalents generally comprise deposits placed on money markets for periods of up to three months which earn interest at a short-term deposit rate; and funds invested with fund managers that have a maturity of less than or equal to three months and are at fixed rates. The carrying amount of cash and cash equivalents approximates fair value.

148 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

16. Biological assets 18. Loans and overdrafts Growing 2019 2018 cane Other Total Note £m £m £m £m £m Current loans and overdrafts At 16 September 2017 77 13 90 Secured loans 9 10 Transferred to inventory (75) (18) (93) Unsecured loans and overdrafts 217 408 Purchases – 1 1 Finance leases 26 1 1 Changes in fair value 76 12 88 227 419 Effect of movements in foreign exchange (2) – (2) Non-current loans At 15 September 2018 76 8 84 Secured loans 1 10 Transferred to inventory (65) (14) (79) Unsecured loans 347 336 Purchases – 1 1 Finance leases 13 13 Changes in fair value 70 9 79 26 Effect of movements in foreign exchange (1) – (1) 361 359 At 14 September 2019 80 4 84 25 588 778

Growing cane The fair value of growing cane is determined using inputs thatare unobservable, using the best information available in the 2019 2018 Note £m £m circumstances for valuing the growing cane, and therefore falls into the level 3 category of fair value measurement. The following assumptions were used in the determination of the estimated sucrose tonnage at 14 September 2019: Secured loans – Other floating rate 10 20 South Africa Malawi Zambia Eswatini Tanzania Mozambique Unsecured loans and overdrafts Expected area to harvest (hectares) 7,401 18,545 15,843 8,704 9,307 5,724 – Bank overdrafts 137 91 Estimated yield (tonnes cane/hectare) 67.8 105.0 121.9 101.6 74.9 83.0 17 – GBP fixed rate 104 147 Average maturity of growing cane 49.9% 67.4% 65.7% 67.0% 46.2% 71.6% – USD floating rate 29 30 The following assumptions were used in the determination of the estimated sucrose tonnage at 15 September 2018: – USD fixed rate 241 428 – EUR floating rate 29 23 South Africa Malawi Zambia Eswatini Tanzania Mozambique – EUR fixed rate – 3 Expected area to harvest (hectares) 6,517 18,363 15,848 8,609 9,426 5,875 – Other floating rate 23 21 Estimated yield (tonnes cane/hectare) 69.0 97.7 119.0 102.1 74.8 82.1 – Other fixed rate 1 1 Average maturity of growing cane 46.4% 68.2% 65.7% 67.7% 46.2% 71.6% Finance leases (fixed rate) 14 14 588 778 A 1% change in the unobservable inputs could increase or decrease the fair value of growing cane as follows: Secured loans comprise amounts borrowed from commercial banks and are secured by floating charges over the assets of 2019 2018 subsidiaries. Bank overdrafts generally bear interest at floating rates. +1% -1% +1% -1% £m £m £m £m 19. Trade and other payables Estimated sucrose content 1.1 (1.1) 1.1 (1.1) 2019 2018 Estimated sucrose price 1.4 (1.4) 1.4 (1.4) £m £m Current – trade and other payables 17. Cash and cash equivalents Trade payables 1,153 1,164 Accruals 1,023 1,020 2019 2018 Note £m £m 2,176 2,184 Deferred income and other non-financial payables 380 345 Cash 2,556 2,529 Cash at bank and in hand 643 658 Non-current – other payables Cash equivalents 852 704 Accruals 271 269 Cash and cash equivalents 25 1,495 1,362 Reconciliation to the cash flow statement In addition to the amounts disclosed above, there are £6m of trade and other payables classified as liabilities held for sale Bank overdrafts 18 (137) (91) (see note 14). Cash and cash equivalents in the cash flow statement 1,358 1,271 For payables with a remaining life of less than one year, carrying amount is deemed to reflect fair value. Cash at bank and in hand generally earns interest at rates based on the daily bank deposit rate.

Cash equivalents generally comprise deposits placed on money markets for periods of up to three months which earn interest at a short-term deposit rate; and funds invested with fund managers that have a maturity of less than or equal to three months and are at fixed rates. The carrying amount of cash and cash equivalents approximates fair value.

148 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 149 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

20. Provisions Deferred Restructuring consideration Other Total £m £m £m £m At 15 September 2018 91 9 40 140 Created 28 11 6 45 Utilised (44) (1) (5) (50) Released (1) (1) (16) (18) Effect of movements in foreign exchange – – 1 1 At 14 September 2019 74 18 2 6 118

Current 45 1 18 64 Non-current 29 17 8 54 74 18 26 118 Financial liabilities within provisions comprised deferred consideration in both years (see note 25). Restructuring Restructuring provisions include onerous leases and the cash costs, including redundancy, associated with the group’s announced reorganisation plans. Deferred consideration Deferred consideration comprises estimates of amounts due to the previous owners of businesses acquired by the group which are often linked to performance or other conditions. Other Other provisions mainly comprise litigation claims and warranty claims arising from the sale and closure of businesses. The extent and timing of the utilisation of these provisions is more uncertain given the nature of the claims and the period of the warranties. 21. Share capital and reserves Share capital At 15 September 2018 and 14 September 2019, the Company’s issued and fully paid share capital comprised 791,674,183 15 ordinary shares of 5 ⁄22p, each carrying one vote per share. Total nominal value was £45m. Other reserves £173m of other reserves arose from the cancellation of share premium account by the Company in 1993. The remaining £2m arose in 2010 as a transfer to capital redemption reserve following redemption of 2 million £1 deferred shares at par. Both are non-distributable. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations, as well as from the translation of liabilities that hedge the group’s net investment in foreign subsidiaries. Hedging reserve The hedging reserve comprises all changes in the value of derivatives to the extent that they are effective cash flow hedges, net of amounts recycled from the hedging reserve on occurrence of the hedged transaction or when the hedged transaction is no longer expected to occur.

150 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

20. Provisions 22. Acquisitions and disposals Deferred Acquisitions Restructuring consideration Other Total 2019 £m £m £m £m On 17 September 2018 the group’s Grocery business completed the acquisition of 100% of Yumi’s Quality Foods, a chilled food At 15 September 2018 91 9 40 140 manufacturer in Australia, and on 6 September 2019 the Grocery business completed the acquisition of Anthony’s Goods, a Created 28 11 6 45 California-based blender and online marketer of speciality baking ingredients. These acquisitions will continue to develop our Utilised (44) (1) (5) (50) presence in the faster growing segments of the grocery market. The group also acquired a small manufacturer of piglet starter Released (1) (1) (16) (18) feed in Poland as part of the Agriculture business and as part of the Ingredients business, acquired Italmill an Italian bakery Effect of movements in foreign exchange – – 1 1 ingredients producer. At 14 September 2019 74 18 2 6 118 The acquisitions had the following effect on the group’s assets and liabilities: Current 45 1 18 64 Non-current 29 17 8 54 Recognised 74 18 26 118 Pre-acquisition values on carrying values acquisition Financial liabilities within provisions comprised deferred consideration in both years (see note 25). £m £m Net assets Restructuring Intangible assets – 56 Restructuring provisions include onerous leases and the cash costs, including redundancy, associated with the group’s announced Property, plant and equipment 20 20 reorganisation plans. Other receivables (non-current) 2 2 Inventories 7 7 Deferred consideration Trade and other receivables 14 14 Deferred consideration comprises estimates of amounts due to the previous owners of businesses acquired by the group which Cash and cash equivalents 2 2 are often linked to performance or other conditions. Trade and other payables (11) (11) Other Loans (15) (15) Other provisions mainly comprise litigation claims and warranty claims arising from the sale and closure of businesses. Taxation (1) (8) The extent and timing of the utilisation of these provisions is more uncertain given the nature of the claims and the period Employee benefit liabilities (1) (1) Net identifiable assets and liabilities 17 66 of the warranties. Goodwill 3 0 21. Share capital and reserves Total consideration 96 Share capital At 15 September 2018 and 14 September 2019, the Company’s issued and fully paid share capital comprised 791,674,183 15 Recognised ordinary shares of 5 ⁄22p, each carrying one vote per share. Total nominal value was £45m. values on acquisition Other reserves £m £173m of other reserves arose from the cancellation of share premium account by the Company in 1993. The remaining £2m Satisfied by arose in 2010 as a transfer to capital redemption reserve following redemption of 2 million £1 deferred shares at par. Both are Cash consideration 85 non-distributable. Deferred consideration 11 Translation reserve 96 The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of Net cash foreign operations, as well as from the translation of liabilities that hedge the group’s net investment in foreign subsidiaries. Cash consideration 85 Cash and cash equivalents acquired (2) Hedging reserve Deferred consideration paid in respect of previous acquisition 1 The hedging reserve comprises all changes in the value of derivatives to the extent that they are effective cash flow hedges, 84 net of amounts recycled from the hedging reserve on occurrence of the hedged transaction or when the hedged transaction is no longer expected to occur. Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from £56m of non-operating intangible assets in respect of brands and customer relationships, which were recognised together with related deferred tax of £7m. The cash outflow of £84m on the purchase of subsidiaries, joint ventures and associates in the cash flow statement comprises cash consideration of £85m for these acquisitions less cash acquired with the businesses of £2m and £1m payment of deferred consideration in respect of previous acquisitions. The acquisitions have contributed aggregate revenues of £42m and operating profit of £4m to the group’s result for the period from the date of acquisition to 14 September 2019. 2018 On 12 October 2017, the group’s Grocery business completed the acquisition of 100% of Acetum S.p.A, the leading Italian producer of Balsamic Vinegar of Modena for a net consideration of £284m including debt assumed of £89m and deferred consideration of £2m. The group also acquired a small aerial survey and informatics company as part of the UK Agriculture business, and as part of the UK Ingredients business, acquired Holgran, a supplier of malted grains, and Fleming Howden, an Edinburgh-based blender and distributor of bakery ingredients. These acquisitions contributed revenue of £83m and operating profit of £11m to the group’s esultsr for the period from date of acquisition to 15 September 2018.

150 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 151 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

22. Acquisitions and disposals continued The acquisitions had the following effect on the group’s assets and liabilities:

Recognised values on acquisition Pre-acquisition carrying values Acetum Other Total £m £m £m £m Net assets Intangible assets – 95 10 105 Property, plant and equipment 41 42 1 43 Inventories 28 95 2 97 Trade and other receivables 28 23 5 28 Cash and cash equivalents 11 11 – 11 Trade and other payables (31) (26) (5) (31) Loans (89) (89) – (89) Taxation 6 (40) (2) (42) Net identifiable assets and liabilities (6) 111 11 122 Goodwill 95 5 100 Total consideration 206 16 222

Recognised values on acquisition £m Satisfied by Cash consideration 218 Deferred consideration 4 222 Net cash Cash consideration 218 Cash and cash equivalents acquired (11) Deferred consideration paid 1 208 Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from £105m of non-operating intangible assets in respect of brands and customer relationships, a £69m upward fair value adjustment on inventories and a £2m upward revaluation of land and buildings, which were recognised together with related deferred tax of £48m. The cash outflow of £208m on the purchase of subsidiaries, joint ventures and associates in the cash flow statement comprises cash consideration of £218m for these acquisitions less cash acquired with the businesses of £11m and £1m payment of deferred consideration in respect of prior year acquisitions. Disposals 2019 In the current year the group disposed of its torula facility and associated torula whole cell business in Hutchinson, Minnesota, reported within the US and Ingredients segments. Cash proceeds amounted to £5m, net assets disposed were £5m and the associated goodwill was £8m. Provisions for transaction and associated restructuring costs were £2m, with a gain of £3m on recycling foreign exchange differences. The pre-tax loss on disposal was £7m. In August we signed an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International, with completion subject to regulatory approval. The joint venture will see us build a major new low-cost yeast plant in the north east of China and will combine AB Mauri’s existing commercial activities and technical expertise in China with Wilmar’s extensive sales and distribution capability. As a consequence, a non-cash impairment charge of £88m has been included in the loss on closure of businesses, comprising £56m of goodwill and £32m of property, plant and equipment. £4m of warranty and restructuring provisions relating to disposals made in previous years are no longer required and were released to sale and closure of businesses during the year in Grocery (The Americas). In the Agriculture segment, goodwill with a carrying value of £3m was written off on sale and closure of a small business in the UK. 2018 In October 2018 the group shut down operations at Vivergo, AB Sugar’s bioethanol plant in Hull. A charge of £51m was included for this in the loss on closure of businesses line in the income statement. The group also completed the buy-out of the remaining 5.5% minority interest in Vivergo. This resulted in the recognition of a gain of £23m (in the Sugar and UK segments) arising from the extinguishment of the associated shareholder loan and interest, which was recognised in sale and closure of businesses in line with the original transaction in 2015. £18m of warranty and restructuring provisions relating to disposals made in previous years were no longer required and were released to sale and closure of business. These comprised £17m in Sugar (Asia Pacific) and £1m in Ingredients (Europe & Africa). The group also charged a £24m onerous lease provision to sale and closure of business (in the Central and UK segments) against rental guarantees given on property leases assigned to third parties that the group expects to be required to honour.

152 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

22. Acquisitions and disposals continued 23. Share-based payments The acquisitions had the following effect on the group’s assets and liabilities: The group had the following principal equity-settled share-based payment plans in operation during the period:

Recognised values on acquisition Associated British Foods Long Term Incentive Plan (‘the LTIP’) Pre-acquisition carrying values Acetum Other Total The LTIP was approved and adopted by the Company at the annual general meeting held on 6 December 2013. It takes the form £m £m £m £m of conditional allocations of shares which are released if, and to the extent that, performance targets are satisfied, typically over Net assets a three-year vesting period. Intangible assets – 95 10 105 Associated British Foods 2016 Long Term Incentive Plan (‘the 2016 LTIP’) Property, plant and equipment 41 42 1 43 The 2016 LTIP was approved and adopted by the Company at the annual general meeting held on 9 December 2016. It takes Inventories 28 95 2 97 Trade and other receivables 28 23 5 28 the form of conditional allocations of shares which are released if, and to the extent that, performance targets are satisfied, Cash and cash equivalents 11 11 – 11 typically over a three-year vesting period. Trade and other payables (31) (26) (5) (31) Associated British Foods Short Term Incentive Plan (‘the 2016 STIP’) Loans (89) (89) – (89) The 2016 STIP was approved and adopted by the Board on 2 November 2016. It takes the form of conditional allocations of Taxation 6 (40) (2) (42) shares which are released at the end of a three-year vesting period if, and to the extent that, performance targets are satisfied, Net identifiable assets and liabilities (6) 111 11 122 over a one-year performance period. Goodwill 95 5 100 Total consideration 206 16 222 Further information regarding the operation of the above plans can be found in the Remuneration report on pages 83 to 106.

Recognised Total conditional allocations under the group’s equity-settled share-based payment plans are as follows: values on acquisition Balance Balance £m outstanding at outstanding the beginning Granted/ Expired/ at the end Satisfied by of the year awarded Vested lapsed of the year Cash consideration 218 2019 3,675,370 1,922,795 (475,947) (461,551) 4,660,667 Deferred consideration 4 2018 3,094,724 1,630,180 (506,293) (543,241) 3,675,370 222 Net cash Employee Share Ownership Plan Trust Cash consideration 218 Shares subject to allocation under the group’s equity-settled share-based payment plans are held in a separate Employee Share Cash and cash equivalents acquired (11) Ownership Plan Trust funded by the Company. Voting rights attached to shares held by the Trust are exercisable by the trustee, Deferred consideration paid 1 who is entitled to consider any recommendation made by a committee of the Company. At 14 September 2019 the Trust held 208 2,781,914 (2018 – 2,225,705) ordinary shares of the Company. The market value of these shares at the year end was £65m (2018 – £50m). The Trust has waived its right to dividends. Movements in the year were releases of 475,947 shares and Pre-acquisition carrying amounts were the same as recognised values on acquisition apart from £105m of non-operating intangible purchases of 1,032,156 shares (2018 – releases of 506,293 shares and purchases of 1,200,000 shares). assets in respect of brands and customer relationships, a £69m upward fair value adjustment on inventories and a £2m upward revaluation of land and buildings, which were recognised together with related deferred tax of £48m. The cash outflow of £208m Fair values on the purchase of subsidiaries, joint ventures and associates in the cash flow statement comprises cash consideration of The weighted average fair value of conditional grants made was determined by taking the market price of the shares at the time £218m for these acquisitions less cash acquired with the businesses of £11m and £1m payment of deferred consideration of grant and discounting for the fact that dividends are not paid during the vesting period. The weighted average fair value of in respect of prior year acquisitions. the conditional shares allocated during the year was 2,335p (2018 – 2,800p) and the weighted average share price was 2,511p (2018 – 3,010p). The dividend yield used was 2.5% (2018 – 2.5%). Disposals 2019 24. Analysis of net cash In the current year the group disposed of its torula facility and associated torula whole cell business in Hutchinson, Minnesota, At At reported within the US and Ingredients segments. Cash proceeds amounted to £5m, net assets disposed were £5m and the 15 September Non-cash Exchange 14 September associated goodwill was £8m. Provisions for transaction and associated restructuring costs were £2m, with a gain of £3m 2018 Cash flow Acquisitions items adjustments 2019 £m £m £m £m £m £m on recycling foreign exchange differences. The pre-tax loss on disposal was £7m. Cash at bank and in hand, cash equivalents In August we signed an agreement to form a yeast and bakery ingredients joint venture in China with Wilmar International, and overdrafts 1,271 87 – – – 1,358 with completion subject to regulatory approval. The joint venture will see us build a major new low-cost yeast plant in the Current asset investments 30 (1) – – – 29 north east of China and will combine AB Mauri’s existing commercial activities and technical expertise in China with Wilmar’s Short-term loans (328) 263 (15) (10) – (90) extensive sales and distribution capability. As a consequence, a non-cash impairment charge of £88m has been included in the Long-term loans (359) (2) – 10 (10) (361) loss on closure of businesses, comprising £56m of goodwill and £32m of property, plant and equipment. 614 347 (15) – (10) 936 £4m of warranty and restructuring provisions relating to disposals made in previous years are no longer required and were Cash and cash equivalents comprise bank and cash balances, call deposits and short-term investments with original maturities released to sale and closure of businesses during the year in Grocery (The Americas). In the Agriculture segment, goodwill with of three months or less. Bank overdrafts that are repayable on demand of £137m form an integral part of the group’s cash a carrying value of £3m was written off on sale and closure of a small business in the UK. management and are included as a component of cash and cash equivalents for the purpose ofthe cash flow statement. 2018 Current asset investments comprise term deposits and short-term investments with original maturities of greater than three In October 2018 the group shut down operations at Vivergo, AB Sugar’s bioethanol plant in Hull. A charge of £51m was included months but less than one year. for this in the loss on closure of businesses line in the income statement. The group also completed the buy-out of the remaining 5.5% minority interest in Vivergo. This resulted in the recognition of a gain of £23m (in the Sugar and UK segments) arising from the extinguishment of the associated shareholder loan and interest, which was recognised in sale and closure of businesses in line with the original transaction in 2015. £18m of warranty and restructuring provisions relating to disposals made in previous years were no longer required and were released to sale and closure of business. These comprised £17m in Sugar (Asia Pacific) and £1m in Ingredients (Europe & Africa). The group also charged a £24m onerous lease provision to sale and closure of business (in the Central and UK segments) against rental guarantees given on property leases assigned to third parties that the group expects to be required to honour.

152 Associated British Foods plc Annual Report and Accounts 2019 Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 153 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments Financial instruments include £5m of trade and other receivables and £5m of trade and other payables which are classified as held for sale, see note 14. All disclosures in this note are given gross, before the held for sale reclassification is made. a) Carrying amount and fair values of financial assets and liabilities 2019 2018 £m £m Financial assets Financial assets at amortised cost Cash and cash equivalents 1,495 1,362 Current asset investments 29 30 Trade and other receivables 1,249 1,241 Other non-current receivables 44 46 At fair value through other comprehensive income Investments 7 4 At fair value through profit or loss Derivative assets not designated in a cash flow hedging relationship: – currency derivatives (excluding cross-currency swaps) 12 20 – commodity derivatives – 3 Designated cash flow hedging relationships Derivative assets designated and effective as cash flow hedging instruments: – currency derivatives (excluding cross-currency swaps) 17 13 – cross-currency swaps 64 60 – commodity derivatives 6 36 Total financial assets 2,923 2,815

Financial liabilities Financial liabilities at amortised cost Trade and other payables (2,452) (2,453) Secured loans (10) (20) Unsecured loans and overdrafts (fair value 2019 – £599m; 2018 – £782m) (564) (744) Finance leases (fair value 2019 – £20m; 2018 – £19m) (14) (14) Deferred consideration (18) (9) At fair value through profit or loss Derivative liabilities not designated in a cash flow hedging relationship: – currency derivatives (excluding cross-currency swaps) (2) (3) – commodity derivatives (1) (3) Designated net investment hedging relationships Derivative liabilities designated as net investment hedging instruments: – cross-currency swaps (23) (30) Designated cash flow hedging relationships Derivative liabilities designated and effective as cash flow hedging instruments: – currency derivatives (excluding cross-currency swaps) (18) (10) – commodity derivatives (8) (6) Total financial liabilities (3,110) (3,292) Net financial liabilities (187) (477) Except where stated, carrying amount is equal to fair value. 2018 balances have been re-presented on a consistent basis with the 2019 classification.

154 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

25. Financial instruments continued Valuation of financial instruments carried at fair value Financial instruments carried at fair value on the balance sheet comprise derivatives. The group classifies these financial instruments using a fair value hierarchy that reflects the relative significance of both objective evidence and subjective judgements on the inputs used in making the fair value measurements:

• Level 1: financial instruments are valued using observable inputs that reflect unadjusted quoted market prices in an active market for identical instruments. An example of an item in this category is a widely traded equity instrument with a normal quoted market price. • Level 2: financial instruments are valued using techniques based on observable inputs, either directly (i.e. market prices and rates) or indirectly (i.e. derived from market prices and rates). An example of an item in this category is a currency derivative, where forward exchange rates and yield curve data, which are observable in the market, are used to derive fair value. • Level 3: financial instruments are valued using techniques involving significant unobservable inputs. b) Derivatives All derivatives are classified as current on the face of the balance sheet. The table below analyses the carrying amount of derivatives and their contractual/notional amounts, together with an analysis of derivatives by the level in the fair value hierarchy into which their fair value measurement method is categorised.

2019 2018 Contractual/ Contractual/ notional notional amounts Level 1 Level 2 Total amounts Level 1 Level 2 Total £m £m £m £m £m £m £m £m Financial assets Currency derivatives (excluding cross-currency swaps) 1,268 – 29 29 1,011 – 33 33 Cross-currency swaps 271 – 64 64 345 – 60 60 Commodity derivatives 149 1 5 6 190 – 39 39 1,688 1 98 99 1,546 – 132 132 Financial liabilities Currency derivatives (excluding cross-currency swaps) 905 – (20) (20) 980 – (13) (13) Cross-currency swaps 214 – (23) (23) 287 – (30) (30) Commodity derivatives 103 – (9) (9) 106 – (9) (9) 1,222 – (52) (52) 1,373 – (52) (52)

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 155 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments continued c) Cash flow hedging reserve The following table identifies the movements in the cash flow hedging reserve during the year, and the periods in which the cash flows are expected to occur. The periods in which the cash flows are expected to impact profit or loss are materially the same.

2019 2018 Currency Currency derivatives derivatives (excluding Cross- (excluding Cross- cross- currency Commodity cross- currency Commodity currency) swaps derivatives Total currency) swaps derivatives Total £m £m £m £m £m £m £m £m Opening balance (3) 9 (20) (14) 27 5 (2) 30 Losses/(gains) recognised in the hedging reserve (54) (22) 33 (43) (83) (6) (32) (121) Amount removed from the hedging reserve and included in the income statement: – revenue (1) – – (1) 6 – – 6 – cost of sales – – (3) (3) – – 12 12 – other financial income/expense – 12 – 12 – 11 1 12 Amount removed from the hedging reserve and included in a non-financial asset: – inventory 60 – 4 64 40 – (5) 35 Deferred tax (1) 2 (8) (7) 7 (1) 6 12 Closing balance 1 1 6 8 (3) 9 (20) (14) Cash flows are expected to occur: – within six months (1) – 5 4 (3) – (15) (18) – between six months and one year 2 – 1 3 1 1 (2) – – between one and two years – 1 – 1 (1) 2 (1) – – between two and five years – – – – – 5 (2) 3 – after five years – – – – – 1 – 1 1 1 6 8 (3) 9 (20) (14) Of the closing balance of £8m, £9m is attributable to equity shareholders and £(1)m to non-controlling interests (2018 – £(14)m, £(13)m is attributable to equity shareholders and £(1)m to non-controlling interests). Of the net movement in the year of £22m, £22m is attributable to equity shareholders and £nil to non-controlling interests (2018 – £(44)m, £(44)m is attributable to equity shareholders and £nil to non-controlling interests). The balance remaining in the commodity cash flow hedge reserve from hedging relationships for which hedge accounting is no longer applied is £2m.

156 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

25. Financial instruments continued d) Financial risk identification and management The group is exposed to the following financial risks from its use of financial instruments: • market risk; • credit risk; and • liquidity risk. The group’s financial risk management process seeks to enable the early identification, evaluation and effective management of key risks facing the business. Risk management policies and systems have been established and are reviewed regularly to reflect changes in market conditions and the group’s activities. The group, through its standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The group sources and sells products and manufactures goods in many locations around the world. These operations expose the group to potentially significant price volatility in the financial and commodity markets. Trading and risk management teams have been established in the group’s major businesses to manage this exposure by entering into a range of products, including physical and financial forward contracts, futures, swaps, and, where appropriate, options. These teams work closely with group Treasury and report regularly to executive management. Treasury operations and commodity procurement and hedging are conducted within a clearly defined framework of board- approved policies and guidelines to manage the group’s financial and commodity risks. Treasury works closely with the group’s procurement teams to manage commodity risks. Treasury policy seeks to ensure that adequate financial resources are available to the group at all times, for the management and development of the group’s businesses, whilst effectively managing its market risk and credit risk. The group’s risk management policy explicitly forbids the use of financial or commodity derivatives (outside its risk management framework of mitigating financial and commodity risks) for speculative purposes. e) Foreign currency translation The group presents its financial statements in sterling. As a result of its worldwide operations, the group is exposed to foreign currency translation risk where overseas operations have a functional currency other than sterling. Changes in foreign currency exchange rates impact the translation into sterling of both the income statement and net assets of these foreign operations. Where appropriate, the group finances its operations by borrowing locally in the functional currency of its operations. This reduces net asset values reported in functional currencies other than sterling, thereby reducing the economic exposure to fluctuations in foreign currency exchange rates on translation. The group also finances its operations by obtaining funding at group level through external borrowings and, where they are not in sterling, these borrowings may be designated as net investment hedges. This enables gains and losses arising on retranslation of these foreign currency borrowings to be charged to other comprehensive income, providing a partial offset in equity against the gains and losses arising on translation of the net assets of foreign operations. At year end, the group had $nil of borrowings (2018 – $160m) that were designated as hedges of its net investment in foreign operations in US dollars. The group also holds cross-currency interest rate swaps to hedge its fixed rate non-sterling debt. These are reported as cash flow hedges and net investment hedges. The change in fair value of the hedging instrument, to the degree effective, is retained in other comprehensive income. Under IFRS 9, the currency basis on the cross-currency swaps is excluded from the hedge designation and recognised in other comprehensive income – cost of hedging. The value of the currency basis is not material. Effectiveness is measured using the hypothetical derivative approach. The hypothetical derivative is based on the critical terms of the debt and therefore the only ineffectiveness that may arise is in relation to credit risk. Credit risk is monitored regularly and is not a significant factor in the hedge relationship. The group does not actively hedge the translation impact of foreign exchange rate movements on the income statement (other than via the partial economic hedge arising from the servicing costs on non-sterling borrowings). The group designates certain of its intercompany loan arrangements as quasi-equity for the purposes of IAS 21. The effect of the designation is that any foreign exchange volatility arising within the borrowing entity and/or the lending entity is accounted for directly within other comprehensive income. A net foreign exchange gain of £1m (2018 – loss of £6m) on retranslation of these loans has been taken to the translation reserve on consolidation, all of which was attributable to equity shareholders. The group also held currency forwards and cross currency swaps that have been designated as hedges of its net investments in Australian dollars and euros, whose change in fair value of £2m has been credited to the translation reserve, all of which was attributable to equity shareholders (2018 – £4m has been debited to the translation reserve).

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 157 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments continued f) Market risk Market risk is the risk of movements in the fair value of future cash flows of a financial instrument or forecast transaction as underlying market prices change. The group is exposed to changes in the market price of commodities, interest rates and foreign exchange rates. These risks are known as ‘transaction’ (or recognised) exposures and ‘economic’ (or forecast) exposures. (i) Commodity price risk Commodity price risk arises from the procurement of raw materials and the consequent exposure to changes in market prices. The group purchases a wide range of commodities in the ordinary course of business. Exposure to changes in the market price of certain of these commodities including wheat, edible oils, lean hog, soya beans, sugar raws, cocoa, rice, tea and energy is managed through the use of forward physical contracts and hedging instruments, including futures, swaps and options primarily to convert floating prices to fixed prices. The use of such contracts to hedge commodity exposures is governed by the group’s risk management policies and is continually monitored by group Treasury. Commodity derivatives also provide a way to meet customers’ pricing requirements whilst achieving a price structure consistent with the group’s overall pricing strategy. Some of the group’s commodity forward contracts are classified as ‘own use’ contracts, since they are entered into, and continue to be held, for the purposes of the group’s ordinary operations. In this instance the group takes physical delivery of the commodity concerned. ‘Own use’ contracts do not require accounting entries until the commodity purchase actually crystallises. Where possible, commodity derivatives are accounted for as cash flow hedges (with a one to one hedge ratio), but there are some commodity derivatives for which the strict requirements of hedge accounting cannot be satisfied. Such commodity derivatives are used only where the business believes they provide an economic hedge of an underlying exposure. These instruments are classified as held for trading and are marked to market through the income statement. The majority of the group’s forward physical contracts and commodity derivatives have maturities of less than one year. The group’s sensitivities in respect of the accounting commodity derivatives for a +/- 20% movement in underlying commodity prices is £28m and (£23m) respectively. (ii) Interest rate risk Interest rate risk comprises two primary elements: • interest price risk results from financial instruments bearing fixed interest rates. Changes in floating interest rates therefore affect the fair value of these fixed rate financial instruments; and • interest cash flow risk results from financial instruments bearing floating rates. Changes in floating interest rates affect cash flows on interest receivable or payable. The group’s policy is to maintain floating rate debt for a significant proportion of its bank finance, although it periodically assesses its position with respect to interest price and cash flow risk. At 14 September 2019, £360m (61%) (2018 – £593m and 76%) of total debt was subject to fixed rates of interest, the majority of which is the US private placement loans of £345m (2018 – £573m). Floating rate debt comprises bank borrowings bearing interest rates fixed in advance, for various time periods up to 12 months, by reference to official market rates (e.g. LIBOR). The group does not have significant sensitivities to the impact of interest rates on derivative valuations, nor to the impact of interest rates on floating rate borrowings. (iii) Foreign currency risk The group conducts business worldwide and consequently in many foreign currencies. As a result, it is exposed to movements in foreign currency exchange rates which affect the group’s transaction costs. The group also publishes its financial statements in sterling and is therefore exposed to movements in foreign exchange rates on the translation of the results and underlying net assets of its foreign operations into sterling. Translation risk is discussed in section e) on page 157. Transaction risk Currency transaction exposure occurs where a business makes sales and purchases in a currency other than its functional currency. It also arises where monetary assets and liabilities of a business are not denominated in its functional currency, and where dividends or surplus funds are remitted from overseas. The group’s policy is to match transaction exposures wherever possible, and to hedge actual exposures and firm commitments as soon as they occur by using forward foreign currency contracts. All foreign currency instruments contracted with non-group entities to manage transaction exposures are undertaken by group Treasury or, where foreign currency controls restrict group Treasury acting on behalf of subsidiaries, under its guidance. Identification of transaction exposures is the responsibility of each business. The group uses derivatives (principally forward foreign currency contracts and time options) to hedge its exposure to movements in exchange rates on its foreign currency trade receivables and payables. The group does not seek formal fair value hedge accounting for such transaction hedges. Instead, such derivatives are classified as held for trading and marked to market through the income statement. This offsets the income statement impact of the retranslation of the foreign currency trade receivables and payables.

158 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

25. Financial instruments continued Economic (forecast) risk The group principally uses forward foreign currency contracts to hedge its exposure to movements in exchange rates on its highly probable forecast foreign currency sales and purchases on a rolling 12-month basis. The group does not formally define the proportion of highly probable forecast sales and purchases to hedge, but agrees an appropriate percentage on an individual basis with each business by reference to the group’s risk management policies and prevailing market conditions. The group designates currency derivatives used to hedge its highly probable forecast transactions as cash flow hedges. Under IFRS 9, the spot component is designated in the hedging relationship and forward points and currency basis are excluded and recognised in other comprehensive income – cost of hedging. The cost of hedging value during the period and at the balance sheet date was not material. The economic relationship is based on critical terms and a one-to-one hedge ratio. To the extent that cash flow hedges are effective, gains and losses are deferred in equity until the forecast transaction occurs, at which point the gains and losses are recycled either to the income statement or to the non-financial asset acquired. The majority of the group’s currency derivatives have original maturities of less than one year. The group’s most significant currency transaction exposures are:

• sugar sales in British Sugar to movements in the sterling/euro exchange rate; • meat purchases in George Weston Foods, predominantly Australian dollar/US dollar exchange rate; and • sourcing for Primark – costs are denominated in a number of currencies, predominantly sterling, euros and US dollars. Elsewhere, a number of businesses make sales and purchase a variety of raw materials in foreign currencies (primarily US dollars and euros), giving rise to transaction exposures. In all other material respects, businesses tend to operate in their functional currencies. The below table illustrates the effects of hedge accounting on the consolidated statement of financial position and consolidated income statement by disclosing separately by risk category, and each type of hedge, the details of the associated hedging instrument and hedged item.

2019 Change in Change in fair fair value of value of hedging hedge item instrument used to Carrying Farthest used to determine Contract Amount assets/ maturity determine hedge hedge Notional (liabilities) date Hedge Ratio ineffectiveness effectiveness £m £m £m £m £m £m Current Designated cash flow hedging relationships – currency derivatives (excluding cross-currency swaps) 1,482 (1) Sep-20 100% (3) 3 – commodity derivatives 209 (4) Aug-20 100% (8) 8

Non-current Designated cash flow hedging relationships – currency derivatives (excluding cross-currency swaps) 79 – Aug-21 100% – – – cross-currency swaps 271 64 Mar-24 100% 20 (20) – commodity derivatives 16 – Sep-21 100% (3) 3

Designated net investment hedging relationships – currency derivatives (cross-currency swaps) 214 (23) Mar-24 100% – – Hedging relationships are typically based on a one-to-one hedge ratio. The economic relationship between the hedged item and the hedging instrument is analysed on an ongoing basis. Sources of possible ineffectiveness include changes in forecast transactions as a result of timing or value or, in certain cases, different indices linked to the hedged item and the hedging instrument. As at 14 September 2019, FX forwards designated as cash flow hedges equal to £1,561m were outstanding. These are largely in relation to purchases of USD (£896m) and sales of EUR (£248m) with varying maturities up to August 2021. Weighted average hedge rates for these contracts are GBPUSD: 1.239, EURUSD: 1.122 and GBPEUR: 1.113. Weighted average hedge rates for the cross-currency swaps are GBPUSD: 1.699 and GBPEUR: 1.262. Commodity derivatives designated as cash flow hedges related to a range of underlying hedged items, with varying maturities out to September 2021.

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 159 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments continued The analysis of the group’s foreign currency exposure to financial assets and liabilities by currency of denomination is as follows:

2019 Sterling US dollar Euro Other Total £m £m £m £m £m Financial assets Cash and cash equivalents 1 87 26 42 156 Trade and other receivables – 43 63 16 122 1 130 89 58 278

Financial liabilities Trade and other payables (17) (525) (40) (12) (594) Unsecured loans and overdrafts – (241) – – (241) (17) (766) (40) (12) (835)

Currency derivatives Gross amounts receivable 74 1,578 129 154 1,935 Gross amounts payable (4) (119) (537) (63) (723) 70 1,459 (408) 91 1,212

54 823 (359) 137 655

2018 Sterling US dollar Euro Other Total £m £m £m £m £m Financial assets Cash and cash equivalents 2 240 21 36 299 Trade and other receivables – 45 72 14 131 2 285 93 50 430

Financial liabilities Trade and other payables (15) (368) (45) (9) (437) Unsecured loans and overdrafts – (428) (1) – (429) (15) (796) (46) (9) (866)

Currency derivatives Gross amounts receivable 69 1,642 130 166 2,007 Gross amounts payable (3) (94) (474) (54) (625) 66 1,548 (344) 112 1,382

53 1,037 (297) 153 946

The following major exchange rates applied during the year:

Average rate Closing rate 2019 2018 2019 2018 US dollar 1.28 1.35 1.25 1.31 Euro 1.13 1.13 1.12 1.12 Rand 18.32 17.52 18.08 19.46 Renminbi 8.78 8.79 8.82 8.97 Australian dollar 1.81 1.76 1.81 1.82

The following sensitivity analysis illustrates the impact that a 10% strengthening of the group’s transactional currencies against local functional currencies would have had on profit and equity. The analysis covers currency translation exposures at year end on businesses’ financial assets and liabilities that are not denominated in the functional currencies of those businesses. A similar but opposite impact would be felt on both profit and equity if the group’s main operating currencies weakened against local functional currencies by a similar amount. The exposure to foreign exchange gains and losses on translating the financial statements of subsidiaries into sterling is not included in this sensitivity analysis, as there is no impact on the income statement, and the gains and losses are recorded directly in the translation reserve in equity (see below for a separate sensitivity). This sensitivity is presented before taxation and non-controlling interests.

160 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

25. Financial instruments continued Sensitivity analysis 2019 2018 impact on 2019 impact on 2018 profit for impact on profit for impact on the year total equity the year total equity 10% strengthening against other currencies of £m £m £m £m Sterling – 6 1 7 US dollar 23 96 11 110 Euro 7 (35) 5 (29) Other 3 18 8 17 A second sensitivity analysis calculates the impact on the group’s profit before tax if the average rates used to translate the results of the group’s foreign operations into sterling were adjusted to show a 10% strengthening of sterling. A similar but opposite impact would be felt on profit before tax if sterling weakened against the other currencies by a similar amount.

2019 2018 impact on impact on profit for profit for the year the year 10% strengthening of sterling against £m £m US dollar (17) (14) Euro (37) (31) Rand – (1) Renminbi 10 (2) Australian dollar (4) (3) g) Credit risk Credit risk is the risk that counterparties to financial instruments do not perform according to the terms of the contract or instrument. The group’s businesses are exposed to counterparty credit risk when dealing with customers, and from certain financing activities. The immediate credit exposure of financial instruments is represented by those financial instruments that have a net positive fair value by counterparty at 14 September 2019. The group considers its maximum exposure to credit risk to be:

2019 2018 £m £m

Cash and cash equivalents 1,495 1,362 Current asset investments 29 30 Trade and other receivables 1,249 1,241 Other non-current receivables 44 46 Investments 7 4 Derivative assets at fair value through profit and loss 12 23 Derivative assets in designated cash flow hedging relationships 64 109 2,900 2,815 The significant majority of cash balances and short-term deposits are held with strong investment-grade banks or financial institutions. The group uses market knowledge, changes in credit ratings and other metrics to identify significant changes to the financial profile of its counterparties. Counterparty risk profile and management The table below analyses the group’s current asset investments, cash equivalents and derivative assets by credit exposure:

Derivatives Currency Current asset Cash derivative Cross-currency investments equivalents assets swaps Total Standard & Poors rating £m £m £m £m £m A+ – – – 21 21 AA- 27 35 4 – 66 A – 11 – 20 31 A- – – 10 – 10 BBB+ 2 – – – 2 BB- – 12 – – 12 As at 14 September 2019 29 58 14 41 142 Cash of £643m and cash equivalents of £794m have been excluded from this analysis as they are available on demand.

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 161 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments continued Trade and other receivables Significant concentrations of credit risk are very limited as a result of the group’s large and diverse customer base. The group has an established credit policy applied by each business under which the credit status of each new customer is reviewed before credit is advanced. This includes external credit evaluations where possible and in some cases bank references. Credit limits are established for all significant or high-risk customers, which represent the maximum amount permitted to be outstanding without requiring additional approval from the appropriate level of management. Outstanding debts are continually monitored by each business. Credit limits are reviewed on a regular basis, and at least annually. Customers that fail to meet the group’s benchmark creditworthiness may only transact with the group on a prepayment basis. Aggregate exposures are monitored at group level. Many of the group’s customers have been transacting with the group for many years and the incidence of bad debts has been low. Where appropriate, goods are sold subject to retention of title so that, in the event of non-payment, the group may have a secured claim. The group does not typically require collateral in respect of trade and other receivables. The group provides for impairment of financial assets includingtrade and other receivables based on known events, and makes a collective provision for losses yet to be identified, based on historical data. The majority of the provision comprises specific amounts. To measure expected credit losses, gross trade receivables are assessed regularly by each business locally with reference to considerations such as the current status of the relationshipwith the customer, the geographical location of each customer, and days past due (where applicable). Expected losses are determined based on the historical experience of write-offs compared to het level of trade receivables. These historical loss expectations are adjusted for current andforward-looking information where it is identified to be significant. The group considers factors such as national economic outlooks and bankruptcy rates of the countries in which its goods are sold to be the most relevant factors. Where the impact of these is assessed as significant, the historical loss expectations are amended accordingly. The group considers credit risk to have significantly increased for debts aged 180 days or over and expects these debts to be provided for in full. Where the group holds insurance or has a legal right of offset with debtors who are also creditors, the ossl expectation is applied only to the extent of the uninsured or net exposure. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable expectation of recovery may include the failure of the debtor to engage in a payment plan, and failure to make contractual payments within 180 days past due. The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region of origin was:

2019 2018 £m £m UK 425 466 Europe & Africa 340 302 The Americas 175 168 Asia Pacific 309 305 1,249 1,241 Trade receivables can be analysed as follows:

2019 2018 £m £m Not overdue 965 950 Up to one month past due 82 90 Between one and two months past due 16 18 Between two and three months past due 8 9 More than three months past due 37 30 Expected loss provision (24) (23) 1,084 1,074 Trade receivables are stated net of the following expected loss provision:

2019 2018 £m £m Opening balance 23 25 Increase charged to the income statement 7 6 Amounts released (3) (4) Amounts written off (3) (4) Amounts acquired through business combinations – 1 Effect of movements in foreign exchange – (1) Closing balance 24 23 No trade receivables were written off directly to the income statement in either year.

162 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

25. Financial instruments continued The geographical and business line complexity of the group, combined with the fact that expected loss assessments are all performed locally, means that it is not practicable to present further analysis of expected losses. In relation to other receivables not forming part of trade receivables, a similar approach has been taken to assess expected losses. No significant expected loss has been identified. The directors consider that the carrying amount of trade and other receivables approximates fair value. In the prior year, the impairment of trade and other receivables was assessed on an incurred loss model basis. Individual receivables that were considered to be uncollectable were written off by reducing the carrying value directly. Individual receivables were assessed to determine if there was evidence of impairment, and losses were recognised in a separate provision for impairment. The group considered the following to be indicators of evidence of impairment: • significant financial difficulties of the debtor; • probability that the debtor would enter bankruptcy; and • default of late payments, the extent to which they were overdue being determined on a case-by-case basis with reference to the knowledge and communication with the debtor and their relationship with the business. The group has a long history of a low level of bad debts. This, coupled with the geographical spread of the group’s operations and its large and diverse customer base, means that IFRS 9 was not expected to result in a significant change to the group’s trade and other receivables. Cash and cash equivalents Banking relationships are generally limited to those banks that are members of the core relationship group. These banks are selected for their credit status, global reach and their ability to meet the businesses’ day-to-day banking requirements. The credit ratings of these institutions are monitored on a continuing basis. In locations where the core relationship banking group cannot be used, operating procedures including choice of bank, opening of bank accounts and repatriation of funds must be agreed with group Treasury. The group has not recorded impairments against cash or cash equivalents, nor have any recoverability issues been identified with such balances. Such items are typically recoverable on demand or in line with normal banking arrangements. h) Liquidity risk Liquidity risk is the risk that the group will encounter difficulty in meeting its obligations associated with its financial liabilities as they fall due. Group Treasury is responsible for monitoring and managing liquidity and ensures that the group has sufficient headroom in its committed facilities to meet unforeseen or abnormal requirements. The group also has access to uncommitted facilities to assist with short-term funding requirements. Available headroom is monitored via the use of detailed cash flow forecasts prepared by each business, which are reviewed at least quarterly, or more often, as required. Actual results are compared to budget and forecast each period, and variances investigated and explained. Particular focus is given to management of working capital. Details of the group’s borrowing facilities are given in section i) on page 164. The following table analyses the contractual undiscounted cash flows relating to financial liabilities at the balance sheet date and compares them to carrying amounts:

2019 Due Due Due between between between Due within 6 months 1 and 2 2 and 5 Due after Contracted Carrying 6 months and 1 year years years 5 years amount amount Note £m £m £m £m £m £m £m Non-derivative financial liabilities Trade and other payables 19 (2,074) (100) (27) (80) (171) (2,452) (2,452) Secured loans 18 (5) (4) – (1) – (10) (10) Unsecured loans and overdrafts 18 (187) (43) (38) (328) – (596) (564) Finance leases 26 (1) (1) (1) (2) (35) (40) (14) Deferred consideration 20 – (1) – (15) (2) (18) (18) Derivative financial liabilities – Currency derivatives (excluding cross- currency swaps) (net payments) (10) (4) (1) – – (15) (20) – Commodity derivatives (net payments) (8) (1) – – – (9) (9) Total financial liabilities (2,285) (154) (67) (426) (208) (3,140) (3,087)

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 163 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments continued 2018 Due Due Due between between between Due within 6 months 1 and 2 2 and 5 Due after Contracted Carrying 6 months and 1 year years years 5 years amount amount Note £m £m £m £m £m £m £m Non-derivative financial liabilities Trade and other payables 19 (2,157) (28) (21) (65) (182) (2,453) (2,453) Secured loans 18 (5) (5) (10) – – (20) (20) Unsecured loans and overdrafts 18 (195) (202) (15) (285) (80) (777) (744) Finance leases 26 (1) (1) (1) (3) (35) (41) (14) Deferred consideration 20 – (1) (2) (4) (2) (9) (9) Derivative financial liabilities Currency derivatives (excluding cross- currency swaps) (net payments) (4) (2) – – – (6) (13) Commodity derivatives (net payments) (8) – (1) – – (9) (9) Total financial liabilities (2,370) (239) (50) (357) (299) (3,315) (3,262) The above tables do not include forecast data for liabilities which may be incurred in the future but which were not contracted at 14 September 2019. The principal reasons for differences between carrying values and contractual undiscounted cash flows are coupon payments on the fixed rate debt to which the group is already committed, future interest payments on the group’s finance leases, and cash flows on derivative financial instruments which are not aligned with their fair value. i) Borrowing facilities The group has substantial borrowing facilities available to it. The undrawn committed facilities available at 14 September 2019, in respect of which all conditions precedent have been met, amounted to £1,235m (2018 – £1,249m):

2019 2018 Facility Drawn Undrawn Facility Drawn Undrawn £m £m £m £m £m £m £1.2bn syndicated facility 1,200 – 1,200 1,200 – 1,200 US private placement 345 345 – 573 573 – Illovo 98 65 33 113 66 47 Other 4 2 2 2 – 2 1,647 412 1,235 1,888 639 1,249 Uncommitted facilities available at 14 September 2019 were:

2019 2018 Facility Drawn Undrawn Facility Drawn Undrawn £m £m £m £m £m £m Money market lines 100 – 100 100 – 100 Illovo 206 90 116 179 62 117 Azucarera 66 29 37 80 22 58 China banking 40 – 40 6 – 6 Other 153 43 110 159 41 118 565 162 403 524 125 399 In addition to the above facilities there are also £75m (2018 – £73m) of undrawn and available credit lines for the purposes of issuing letters of credit and guarantees in the normal course of business. The group also has £14m (2018 – £14m) of finance lease liabilities which are not included in the tables above, but which are included in the group’s loans and overdrafts in note 18. The group has a £1.2bn syndicated facility which matures in July 2021. In addition to the bank debt, the Company has £345m of private placement notes in issue to institutional investors in the US and Europe. At 14 September 2019, these had an average remaining duration of 2.7 years and an average fixed coupon of 4.4%. The other significant core committed debt facilities comprise local committed facilities in Illovo. Uncommitted bank borrowing facilities are normally reaffirmed by the banks annually, although they can theoretically be withdrawn at any time. Refer to note 9 for details of the group’s capital commitments and to note 27 for a summary of the group’s guarantees. An assessment of the group’s current liquidity position is given in the Financial review on page 51.

164 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

25. Financial instruments continued j) Capital management The capital structure of the group is presented in the balance sheet. The statement of changes in equity provides details on equity and note 18 provides details of loans and overdrafts. Short and medium-term funding requirements are provided by a variety of loan and overdraft facilities, both committed and uncommitted, with a range of counterparties and maturities. Longer term funding is sourced from a combination of these facilities, the private placement notes and committed syndicated loan facilities. The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to enable successful future development of the business. The board monitors return on capital by division and determines the overall level of dividends payable to shareholders. From time to time the trustee of the Employee Share Ownership Plan Trust purchases the Company’s shares in the market to satisfy awards under the group’s incentive plans. Once purchased, shares are not sold back into the market. The group does not have a defined share buy-back plan. There were no changes to the group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally-imposed capital requirements. k) Implementation of IFRS 9 Financial Instruments IFRS 9 was adopted using the modified transition approach without restating comparative information. No reclassifications or adjustments were required in the opening balance sheet on 16 September 2018. The adoption of IFRS 9 resulted in changes to the group’s accounting policies in the three key areas of classification and measurement, impairment and hedge accounting. Classification and measurement As of 16 September 2018, the group assessed which business models apply to each category of its financial assets and classified them into the three categories defined by IFRS 9: amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVPL). All assets previously classified as amortised cost retained this classification. All assets previously classified as available for sale were irrevocably designated as FVOCI, whereby any gains or losses on eventual disposal are included directly in retained earnings and are not recycled to the income statement. All assets previously classified as loans and receivables were classified as amortised cost. All assets previously classified as FVPL retained this classification. There were no changes in classification of financial liabilities. This can be summarised as follows:

Original classification under IAS 39 New classification under IFRS 9 Non-current financial assets Investments (recorded within other non- Available for sale FVOCI current receivables) Other non-current receivables Amortised cost Amortised cost Current financial assets Cash and cash equivalents Amortised cost Amortised cost Current asset investments Amortised cost Amortised cost Trade and other receivables Amortised cost Amortised cost Derivatives not designated in a hedging FVPL FVPL relationship Derivatives designated in a hedging FVPL but with gains and losses recorded FVPL but with gains and losses recorded relationship in the hedging reserve when effective in the hedging reserve when effective Current financial liabilities Trade and other payables Amortised cost Amortised cost Loans and other financial liabilities Amortised cost Amortised cost Derivatives not designated in a FVPL FVPL hedging relationship Derivatives designated in a hedging FVPL but with gains and losses recorded FVPL but with gains and losses recorded relationship in the hedging reserve when effective in the hedging reserve when effective Non-current financial liabilities Trade and other payables Amortised cost Amortised cost Loans and other financial liabilities Amortised cost Amortised cost

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 165 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

25. Financial instruments continued Impairment The group holds the following types of financial assets subject to IFRS 9’s new expected credit loss model: • Other non-current receivables • Trade receivables • Other receivables The group revised its impairment methodology under IFRS 9 for each of these classes of assets. The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all trade receivables. There were no adjustments required in the opening balance sheet as at 16 September 2018. Further information is given earlier in this note. Hedge accounting The new principles for hedge accounting provide a more flexible framework which is better aligned with the economic decision- making of the group. All hedge relationships were regarded as continuing hedge relationships, as all which were designated hedges under IAS 39 as at 15 September 2018 met the criteria for hedge accounting under IFRS 9 as the group’s risk management strategies and hedge documentation were aligned to the new standard. Under IAS 39, the group included the currency basis within the hedge relationship. On transition, IFRS 9 allows the choice to separate aspects of the costs of hedging from the designation within a hedge relationship as part of the hedging instrument. Similarly under IFRS 9 in relation to cross-currency swaps, the currency basis is excluded from the hedge designation and recognised in the cost of hedging reserve. The balance in the cost of hedging reserve was not significant as at 16 September 2018 or at 14 September 2019. 26. Lease commitments Operating leases The group acts as a lessee, lessor and sub-lessor for land and buildings, and plant and machinery, under operating leases. Rental receipts of £8m (2018 – £7m) were recognised in the income statement in the period relating to operating leases. The total of future minimum rental receipts expected to be received is £50m (2018 – £45m). Under the terms of the lease agreements, no contingent rents are payable. The future minimum lease payments under operating leases are as follows:

2019 2019 2018 2018 land and plant and 2019 land and plant and 2018 buildings equipment total buildings equipment total £m £m £m £m £m £m Within one year 342 19 361 315 12 327 Between one and five years 1,423 27 1,450 1,280 18 1,298 After five years 3,401 1 3,402 2,989 – 2,989 5,166 47 5,213 4,584 30 4,614

Finance leases Finance lease liabilities are payable as follows:

2019 2018 minimum minimum lease 2019 2019 lease 2018 2018 payments interest principal payments interest principal £m £m £m £m £m £m Within one year 2 1 1 2 1 1 Between one and five years 4 3 1 4 3 1 After five years 34 22 12 35 23 12 40 26 14 41 27 14

166 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

27. Contingencies Litigation and other proceedings against companies in the group are not considered material in the context of these financial statements. Where group companies enter into financial guarantee contracts to guarantee the indebtedness of other group companies, the group considers these to be insurance arrangements and has elected to account for them as such in accordance with IFRS 4. In this respect, the guarantee contract is treated as a contingent liability until such time as it becomes probable that the relevant group company issuing the guarantee will be required to make a payment under the guarantee. As at 14 September 2019, group companies have provided guarantees in the ordinary course of business amounting to £1,902m (2018 – £1,661m). 28. Related parties The group has a controlling shareholder relationship with its parent company, Wittington Investments Limited, with the trustees of the Garfield Weston Foundation and with certain other individuals who hold shares in the Company. Further details of the controlling shareholder relationship are included in note 29. The group has a related party relationship with its associates and joint ventures (see note 29) and with its directors. In the course of normal operations, related party transactions entered into by the group have been contracted on an arm’s length basis. Material transactions and year end balances with related parties were as follows:

Sub 2019 2018 note £000 £000 Charges to Wittington Investments Limited in respect of services provided by the Company and its subsidiary undertakings 1,143 1,045 Dividends paid by Associated British Foods and received in a beneficial capacity by: (i) trustees of the Garfield Weston Foundation and their close family 1 12,083 11,685 (ii) directors of Wittington Investments Limited who are not trustees of the Foundation and their close family 5,941 3,071 (iii) directors of the Company who are not trustees of the Foundation and are not directors of Wittington Investments Limited 2 82 62 Sales to fellow subsidiary undertakings on normal trading terms 3 75 48 Sales to companies with common key management personnel on normal trading terms 4 16,014 16,043 Commissions paid to companies with common key management personnel on normal trading terms 4 1,103 1,215 Amounts due from companies with common key management personnel 4 1,880 1,887 Sales to joint ventures on normal trading terms 12,744 14,186 Sales to associates on normal trading terms 31,174 39,822 Purchases from joint ventures on normal trading terms 380,176 395,279 Purchases from associates on normal trading terms 15,739 14,577 Amounts due from joint ventures 46,102 48,775 Amounts due from associates 2,620 3,771 Amounts due to joint ventures 27,962 40,715 Amounts due to associates 1,282 857

1. The Garfield Weston Foundation (‘the Foundation’) is an English charitable trust, established in 1958 by the late W. Garfield Weston. The Foundation has no direct interest in the Company, but as at 14 September 2019 was the beneficial owner of 683,073 shares (2018 – 683,073 shares) in Wittington Investments Limited representing 79.2% (2018 – 79.2%) of that company’s issued share capital and is, therefore, the Company’s ultimate controlling party. At 14 September 2019 trustees of the Foundation comprised four grandchildren of the late W. Garfield Weston and five children of the late Garry H. Weston. 2. Details of the directors are given on pages 68 and 69. Their interests, including family interests, in the Company and its subsidiary undertakings are given on pages 101 and 102. Key management personnel are considered to be the directors, and their remuneration is disclosed within the Remuneration report on pages 83 to 106. 3. The fellow subsidiary undertakings are Fortnum and Mason plc and Heal & Son Limited. 4. The companies with common key management personnel are the George Weston Limited group, in Canada, and Selfridges & Co. Limited. Amounts due from joint ventures include £44m (2018 – £47m) of finance lease receivables (see note 13). The remainder of the balance is trading balances. All but £5m (2018 – £5m) of the finance lease receivables are non-current.

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 167 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

29. Group entities Control of the group The largest group in which the results of the Company are consolidated is that headed by Wittington Investments Limited (‘Wittington’), the accounts of which are available at Companies House, Crown Way, Cardiff CF14 3UZ. It is the ultimate holding company, is incorporated in Great Britain and is registered in England. At 14 September 2019 Wittington, together with its subsidiary, Howard Investments Limited, held 431,515,108 ordinary shares (2018 – 431,515,108) representing in aggregate 54.5% (2018 – 54.5%) of the total issued ordinary share capital of Associated British Foods plc. Wittington, and, through their control of Wittington, the trustees of the Garfield Weston Foundation (‘the Foundation’) are controlling shareholders of the Company. Certain other individuals, including certain members of the Weston family who hold shares in the Company (and including two of the Company’s directors, George Weston and Emma Adamo) are, under the Listing Rules, treated as acting in concert with Wittington and the trustees of the Foundation and are therefore also treated as controlling shareholders of the Company. Wittington, the trustees of the Foundation and these individuals together comprise the controlling shareholders of the Company and, at 14 September 2019, have a combined interest in approximately 59.53% (2018 – 59.15%) of the Company’s voting rights. Information on the relationship agreement between the Company and its controlling shareholders is set out on page 107 of the Directors’ report. Subsidiary undertakings A list of the group’s subsidiaries as at 14 September 2019 is given below. The entire share capital of subsidiaries is held within the group except where the group’s ownership percentages are shown. These percentages give the group’s ultimate interest and therefore allow for the occasional situation where subsidiaries are owned by partly-owned intermediate subsidiaries. Where subsidiaries have different classes of shares, this is largely for historical reasons and the effective percentage holdings given represent both the group’s voting rights and equity holding. Shares in ABF Investments plc are held directly by Associated British Foods plc. All other holdings in subsidiaries are owned by members of the Associated British Foods plc group. All subsidiaries are consolidated in the group’s financial statements.

% effective holding % effective holding Subsidiary undertakings if not 100% Subsidiary undertakings if not 100% United Kingdom ABF UK Finance Limited Weston Centre, 10 Grosvenor Street, London, ABF US Holdings Limited W1K 4QY, United Kingdom ABN (Overseas) Limited A.B. Exploration Limited ABNA Feed Company Limited A.B.F. Holdings Limited ABNA Limited A.B.F. Nominees Limited Agrilines Limited A.B.F. Properties Limited Allied Bakeries Limited AB Agri Limited Allied Grain (Scotland) Limited AB Foods Australia Limited Allied Grain (South) Limited AB Ingredients Limited Allied Grain (Southern) Limited AB Mauri (UK) Limited Allied Grain Limited AB Mauri China Limited Allied Mills Limited AB Mauri Europe Limited Allied Technical Centre Limited AB Sugar China Holdings Limited Allinson Limited AB Sugar China Limited Associated British Foods Pension Trustees Limited AB Sugar China North Limited Atrium 100 Properties Limited AB Sugar Limited Atrium 100 Stores Holdings Limited AB Technology Limited Atrium 100 Stores Limited AB World Foods (Holdings) Limited B.E. International Foods Limited AB World Foods Limited Banbury Agriculture Limited ABF (No. 1) Limited British Sugar (Overseas) Limited ABF (No. 2) Limited British Sugar plc ABF (No. 3) Limited BSO (China) Limited ABF BRL Finance Ltd Cereal Industries Limited ABF Europe Finance Limited Cereform Limited ABF European Holdings Limited Davjon Food Limited ABF Finance Limited Dorset Cereals Limited ABF Food Tech Investments Limited Eastbow Securities Limited ABF Funding Elsenham Quality Foods Limited ABF Grain Products Limited Fishers Feeds Limited ABF Green Park Limited Fishers Seeds & Grain Limited ABF Grocery Limited Food Investments Limited ABF HK Finance Limited G. Costa (Holdings) Limited ABF Ingredients Limited G. Costa and Company Limited ABF Investments plc Germain’s (U.K.) Limited ABF Japan Limited H 5 Limited ABF MXN Finance Limited Illovo Sugar Africa Holdings Limited ABF Overseas Limited John K. King & Sons Limited ABF PM Limited Kingsgate Food Ingredients Limited

168 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

29. Group entities continued

% effective holding % effective holding Subsidiary undertakings if not 100% Subsidiary undertakings if not 100% LeafTC Limited Argentina Mauri Products Limited Mariscal Antonio José de Sucre 632 – 2nd Mitra Sugar Limited Floor, Buenos Aires 1428, Argentina Mountsfield Park Finance Limited AB Mauri Hispanoamerica S.A. Nere Properties Limited Surgras S.A (in liquidation) Nutrition Trading (International) Limited Av. Raul Alfonsin, Monte Chingolo, Nutrition Trading Limited Buenos Aires 3145, Argentina Patak (Spices) Limited Compañía Argentina De Levaduras S.A.I.C. Patak Food Limited Australia Patak’s Breads Limited Building A, Level 2, 11 Talavera Road, Patak’s Foods 2008 Limited North Ryde, NSW 2113, Australia Premier Nutrition Products Limited AB Mauri Overseas Holdings Limited Pride Oils Public Limited Company AB Mauri Pakistan Pty Limited Primark (U.K.) Limited AB Mauri ROW Holdings Pty Limited Primark Austria Limited AB Mauri South America Pty Limited Primark Mode Limited AB Mauri South West Asia Pty Limited Primark Pension Administration Services Limited AB Mauri Technology & Development Pty Limited Primark Stores Limited AB Mauri Technology Pty Limited Primary Diets Limited AB World Foods Pty Ltd Primary Nutrition Limited Anzchem Pty Limited Pro-Active Nutrition Limited Dagan Trading Pty Ltd R. Twining and Company Limited Food Investments Pty. Limited Reflex Nutrition Limited George Weston Foods (Victoria) Pty Ltd Roses Nutrition Ltd George Weston Foods Limited Seedcote Systems Limited Indonesian Yeast Company Pty Limited Serpentine Securities Limited Mauri Fermentation Brazil Pty Limited Sizzlers Limited Mauri Fermentation Chile Pty Limited Sizzles Limited Mauri Fermentation China Pty Limited Spectrum Aviation Limited Mauri Fermentation India Pty Limited Speedibake Limited Mauri Fermentation Indonesia Pty Limited Sunblest Bakeries Limited Mauri Fermentation Malaysia Pty Limited The Bakery School Limited Mauri Fermentation Philippines Pty Limited The Billington Food Group Limited Mauri Fermentation Vietnam Pty Limited The Home Grown Sugar Company Limited Mauri Yeast Australia Pty Limited The Jordans & Ryvita Company Limited N&C Enterprises Pty Ltd The Natural Sweetness Company Limited NB Love Industries Pty Ltd The Roadmap Company Limited Serrol Ingredients Pty Limited The Silver Spoon Company Limited The Jordans and Ryvita Company Australia Pty Ltd Tip Top Bakeries Limited Yumi's Quality Foods Pty Ltd Trident Feeds Limited 35-37 South Corporate Avenue, Rowville, Twining Crosfield & Co. Limited VIC 3178, Australia Vivergo Fuels Limited AB Food & Beverages Australia Pty. Limited W. Jordan & Son (Silo) Limited 170 South Gippsland Highway, Dandenong, W. Jordan (Cereals) Limited VIC 3175, Australia Wereham Gravel Company Limited (The) ABF Wynyard Park Limited Partnership Westmill Foods Limited Austria Weston Biscuit Company Limited (The) Schottenring 19, 1010 Wien, Austria Weston Foods Limited Primark Austria Ltd & Co KG Weston Research Laboratories Limited Bangladesh Worldwing Investments Limited Level 13 Shanta Western Tower, Bir Uttam Mir 1 College Place North, Belfast, BT1 6BG, Shawkat Road, 186 Tejgaon I/A, Dhaka 1208, United Kingdom Bangladesh James Neill, Limited Twinings Ovaltine Bangladesh Limited Unit 4, 211 Castle Road, Randalstown, Belgium Co. Antrim, BT41 2EB, United Kingdom Industriepark 2d, 9820 Merelbeke, Belgium Jordan Bros. (N.I.) Limited AB Mauri Belgium NV Nutrition Services (International) Limited Boulevard Raymond Poincare 07/113, Vistavet Limited 4020 Liege, Belgium 180 Glentanar Road, Glasgow, G22 7UP, United Primark SA Kingdom Brazil ABN (Scotland) Limited Avenida Tietê, L-233 Barranca do Rio Tietê, Miller Samuel LLP, RWF House, City of Pederneiras, State of Sao Paulo, 5 Renfield Street, Glasgow, G2 5EZ, United CEP 17.280-000, Brazil Kingdom AB Brasil Indústria e Comércio de Alimentos Ltda Korway Foods Limited Alameda Madeira 328, 20th Floor, Room 2005, Korway Holdings Limited Alphaville – Barueri, Sao Paulo 06454-010, Brazil Patak’s Chilled Foods Limited AB Enzimas Brasil Comercial Ltda Patak’s Frozen Foods Limited

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 169 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

29. Group entities continued

% effective holding % effective holding Subsidiary undertakings if not 100% Subsidiary undertakings if not 100% Rua Cardeal Arcoverde. 1641 9th Floor, 17 Xiangyang Street, Tu Township, Chayou Sao Paulo, 05407002, Brazil Qianqi , Inner Mongolia, China AB Vista Brasil Comércio De Alimentação Botian Sugar Industry (Chayou Qianqi) Co., Ltd. Animal Ltda No. 1 Botian Road, Economic Development Canada Zone, Zhangbei County, Zhangjiakou City, Blake, Cassels & Graydon LLP, 199 Bay Street, Hebei Province, China Suite 4000, Toronto, Ontario M5L 1A9, Canada Botian Sugar Industry (Zhangbei) Co., Ltd. AB Mauri (Canada) Limited Development Zone Administration Tower, Chile No. 368 Changjiang Road, Nangang District, Miraflores Street No. 222, 28 Floor, Santiago, Haibin, Hieilongjiang Province, China Chile Botian Sugar Industry Co., Ltd. Calsa Chile Inversiones Limitada 1 Industrial North Street, Zhangjiakou, China Zhangbei County, Hebei Province, China No. 1 Tongcheng Street, A Cheng District, Hebei Mauri Food Co., Ltd. Harbin, Heilongjiang Province, China Meishan Industrial Estate, Huangge Town, AB (Harbin) Food Ingredients Company Limited Nansha District, Guangzhou City, Guangdong Harbin Mauri Yeast Co., Ltd. Province, China North Huang He Road, Rudong Meishan Mauri Yeast Co., Ltd. (in liquidation) New Economic Development Zone, Panyu Mauri Food Co., Ltd. Nantong City, Jiangsu Province, China 8 Lancun Road, Economic and Technical AB Agri Animal Nutrition (Nantong) Co., Ltd Development Zone, Minhang, Shanghai AB Agri Animal Nutrition (Rudong) Co., Ltd. 200245, China Chuangxin Road, Tonggu Industry Zone, Shanghai AB Food & Beverages Co., Ltd Sandu Town, Tonggu County, Jiangxi Province, Jie Liang Zi,Huo Cheug, Yi Li, Xinjiang, China China Xinjiang Mauri Food Co., Ltd. 90% AB Agri Pumeixin Tech (Jiangxi) Co. Ltd. No. 68-1, Shuanglong Road, Fushan District, No. 889 West Yan An Road, Changning District, Yantai City, Shandong Province, China Shanghai, 200050, China Yantai Mauri Yeast Co., Ltd. 92% AB Enzymes Trading (Shanghai) Co., Ltd Colombia ABNA Management (Shanghai) Co., Ltd. Cra 35# 34A-64, Palmira, Valle, Colombia ABNA Trading (Shanghai) Co., Ltd Fleischmann Foods S.A. Room 2906 29/F Changning Raffles Tower 2, Czech Republic No. 1189 Changning Road, Changning District, Nádražní 523, Czech Republic Shanghai, 200051, China Bodit Tachov s.r.o. Associated British Foods Holdings (China) Co., Ltd Karolinská 661/4, Karlín, 186 00 Praha 8, Czech Suite 702, Fosun International Center, No. 237 Republic Chaoyangbei Road, Beijing, Chaoyang District, Primark Prodejny s.r.o. China Denmark AB Mauri (Beijing) Food Sales and Skjernvej 42,Trøstrup, 6920 Videbæk, Denmark Marketing Company Limited Agro Korn A/S Xinsha Industrial Zone, Machong Town, Ecuador Dongguan, Guangdong Province, China Medardo Ángel Silva 13 y Panamá, Manzana AB Mauri Food (Dongguan) Co., Ltd. 12, El Recreo, Eloy Alfaro, Durán, Guayas, Building 1, 35 Chi Feng Road , Yangpu District, Ecuador Shanghai 200092, China ABCALSA S.A. AB Mauri Foods (Shanghai) Company Limited 90% Eswatini South Ge XinDaDao, West WuZiGou, Wuhan, Ubombo Sugar Limited, Old Main Road, DongXHu District 430040, China Big Bend, Eswatini AB Tip Top (Wuhan) Baking Co Ltd Bar Circle Ranch Limited 60% Building T3-4, No. 5001, Huadong Road, Illovo Swaziland Limited 60% Shanghai Jinqiao Export Processing Zone (SA), Moyeni Ranch Limited 60% Customs Supervised Area, Pudong New Area, Ubombo Sugar Limited 60% Shanghai 201201, China Finland ABF Twinings Beverages (Shanghai) Limited Tykkimäentie 15b (PO Box 26), Rajamäki, 868 Yongpu Road, Pujiang Town, FI-05200, Finland Minhang District, Shanghai 201112, China AB Enzymes Oy ABNA (Shanghai) Feed Co., Ltd. Tykkimäentie 15b (PO Box 57), Rajamäki, 14 Juhai Road, Jinghai Development Zone, FI-05201, Finland Tianjin, China Enzymes Leasing Finland Oy ABNA (Tianjin) Feed Co, Ltd France Shu Shan Modern Industrial Zone of Shou 40/42, avenue Georges Pompidou, 69003, County, Huainan City, Anhui Province, China à Lyon, France ABNA Feed (Anhui) Co., Ltd. AB Mauri France SAS 145 Xincheng Road, Tengao Economic 75 Square Haussmann, 75008, Paris, France Development Zone, Anshan, Liaoning 114225, ABFI France SAS China 5 Boulevard de l'Oise, Immeuble Le Rond Point, ABNA Feed (Liaoning) Co., Ltd. 95000 Cergy Pontoise, Cédex, France Foods International S.A.S.

170 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

29. Group entities continued

% effective holding % effective holding Subsidiary undertakings if not 100% Subsidiary undertakings if not 100% 3/5 Rue Saint-Georges, 75009, Paris, France Via Rizzotto 46, 41126, Modena (MO), Italy Primark France SAS Acetaia Fini Modena S.r.l. Chemin du Vallon du maire, 13240, Via Sandro Pertini 440, 401314, Cavezzo (MO), Italy Septemes les Vallons, France Acetum S.p.A. SPI Pharma SAS Via Allende 9/D, 41032, Cavezzo (MO), Italy Germany Antica Acetaia Simonini S.r.l. Feldbergstrasse 78, 64293, Darmstadt, Via Ettore Bugatti 11, 20142, Milan, Italy Germany Italmill S.p.A AB Enzymes GmbH Japan Wandsbeker Zollstrasse 59, 22041, 36F Atago Green Hills Mori Tower, 2-5-1 Atago, Hamburg, Germany Minato-ku, Tokyo 105-6236, Japan ABF Deutschland Holdings GmbH Twinings Japan Co Ltd 50% Ohly GmbH Jersey Ohly Grundbesitz GmbH CTV House, La Pouquelaye, St Helier, Rheinische Presshefe- und Spritwerke GmbH JE2 3TP, Jersey Kennedyplatz 2, 45127, Essen, Germany Bonuit Investments Limited Primark Mode Ltd. & Co. KG Luxembourg Primark Property GmbH 9 Allee Scheffer, Luxembourg, L2520, Marie-Kahle-Allee 2, D-53113, Bonn, Germany Luxembourg Westmill Foods Europe GmbH ABF European Holdings & Co SNC (in liquidation) Guernsey Malawi Dorey Court, Admiral Park, St. Peter Port, Illovo House, Churchill Road, Limbe, Malawi GY1 2HT, Guernsey Dwangwa Sugar Corporation Limited 76% Talisman Guernsey Limited Illovo Sugar (Malawi) plc 76% Hong Kong Malawi Sugar Limited 7/F DCH Building, 20 Kai Cheung Road, Malaysia Kowloon Bay, Kowloon, Hong Kong No 118, Jalan Pudu, 1st Floor, Associated British Foods Asia Pacific 55100 Kuala Lumpur, Malaysia Holdings Limited AB Mauri Malaysia Sdn. Bhd. 52% India Malta #218 & #219, Bommasandra – Jigani Link Road, 57 St. Christopher Street, Valletta, Anekal Taluk, Bangalore, 560105, India VLT1462, Malta AB Mauri India (Private) Limited Relax Limited 70% First Floor, Regent Sunny Side, 80 Ft Road, Mauritius 8th Block, Koramangala Bengaluru, Karnataka, 10th Floor, Standard Chartered Tower, 560030, India 19 Cybercity, Ebene, Mauritius SPI Specialties Pharma Private Limited Illovo Group Financing Services Limited 8, Acharya Jagadish Chandra Bose Road, Illovo Group Holdings Limited Kolkata, 700017, India Illovo Group Marketing Services Limited Twinings Private Limited Kilombero Holdings Limited 73% Indonesia Sucoma Holdings Limited Wisma GKBI Lt.39, Suite 3901, No.28 Jl. Jend, Mexico Sudirman, Jakarta , Indonesia Paseo de la Reforma No 2620, Edificio Reforma PT AB Food & Beverages Indonesia (in liquidation) Plus, piso 8, 803, 804 y 803, Col. Lomas Atlas, Ireland DF 11950, Mexico 47 Mary Street, Dublin 1, Ireland AB CALSA S.A. de C.V. Abdale Finance Limited AB CALSA SERVICIOS, S. DE R.L. DE C.V. Primark Holdings Av. Prolongacion Paseo de la Reforma No. Primark Pension Trustees Limited 1015, Torre "A", piso 14 Col., Santa Fe, Proofex Products Company Unlimited Company Cuajimalpa, Ciudad de México, 05348, Mexico (in liquidation) ACH Foods Mexico, S. de R.L. de C.V. Vistavet (Ireland) Limited Servicios Alimentos Capullo, S. de R.L. de C.V. Yeast Products Company Unlimited Company Mozambique (in liquidation) KM75 EN1, Maçiana, Distrito de Manhiça, 1 Stokes Place, St. Stephen’s Green, Dublin 2, Provincia de Maputo, Mozambique Ireland Maragra Açucar, S.A. 90% Allied Mills Ireland Limited Netherlands Arthur Ryan House, 22-24 Parnell Street, Mijlweg 77, 3316 BE, Dordrecht, Netherlands Dublin 1, Ireland AB Mauri Netherlands B.V. Primark Limited Luna ArenA, Herikerbergweg 238, 1101 CM, Italy Amsterdam Zuidoost, Netherlands Via Milano 42, 27045, Casteggio, (Pavia), Italy AB Mauri Netherlands European Holdings B.V. AB Mauri Italy S.p.A. Foods International Holding B.V. ABF Italy Holdings S.r.l. Primark Fashion B.V. Primark Italy S.r.l. Primark Netherlands B.V. Via Montanara 22/24, 40051, Castelnuovo Primark Stil B.V. Rangone (MO), Italy Acetaia di Modena S.r.l

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 171 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

29. Group entities continued

% effective holding % effective holding Subsidiary undertakings if not 100% Subsidiary undertakings if not 100% Weena 505, 3013AL Rotterdam, Netherlands Rwanda AB Vista Europe B.V. Shop number E002B, 1st Floor, CHIC Building, Nyarugenge 7122 JS Aalten, Dinxperlosestraatweg 122, District, Nyarugenge Sector, Kigali City, Rwanda Netherlands Illovo Sugar (Kigali) Limited Germains Seed Technology B.V. Singapore Brieltjenspolder 16, 4921 PJ Made, Netherlands 80 Robinson Road, #02-00, 068898 Singapore Mauri Technology B.V. AB Mauri Investments (Asia) Pte Ltd Stadhuisstrat 3, 5038XZ, Tilburg, Netherlands 112 Robinson Road #05-01, 068902 Singapore Primark Austria B.V. AB Vista Asia Pte. Limited Primark Germany B.V. Slovakia Dalsteindreef 141, Diemen, 1112XJ, Dvorakovo nabrezie 4, Bratislava 811 02, Slovakia Netherlands Primark Slovakia s.r.o. Westmill Foods Europe B.V. Slovenia New Zealand Cesta v Mestni log 88A, Ljubljana 1000, Building 3, Level 2, 666 Great South Road, Slovenia Ellerslie, Auckland 1051, New Zealand Primark Trgovine, trgovsko podjetje, d.o.o. Allied Foods (NZ) Ltd South Africa Anzchem NZ Limited 1 Nokwe Avenue, Ridgeside, Umhlanga Rocks, George Weston Foods (NZ) Limited Kwazulu Natal, 4320, South Africa New Zealand Food Industries Limited CGS Investments (Pty) Limited Nigeria East African Supply (Pty) Limited 23 Oba Akinjobi Street, GRA, Ikeja, Lagos, Glendale Sugar (Pty) Ltd Nigeria Illovo Distributors (Pty) Limited Twinings Ovaltine Nigeria Limited Illovo Sugar (South Africa) Proprietary Limited Pakistan Illovo Sugar Africa Proprietary Limited 21KM Ferozepur Road, 2k KM Hadyara Drain, Illprop (Pty) Limited Lahore, Pakistan Lacsa (Pty) Limited 70% AB Mauri Pakistan (Private) Limited 60% Noodsberg Sugar Company (Pty) Ltd Peru Reynolds Brothers (Pty) Ltd Av. Argentina No. 1227, Callao, Peru S.A. Sugar Distributors (Pty) Limited Calsa Perú S.A.C. Smithchem (Pty) Limited Philippines Umzimkulu Sugar Company (Pty) Ltd 86 E Rodriguez Jr. Ave., Ugong Norte, QC,1604, Spain Pasig City, Metro Manila, Philippines Avenida de Manoteras 46 bis, AB Food & Beverages Philippines, Inc. 99% Edificio Delta Norte, 28050, Madrid, Spain 1201-1202 Prime Land Building, Market Street, AB Azucarera Iberia, S.L. Sociedad Unipersonal Madrigal Business Park, Ayala Alabang, AB Mauri Food, S.A Muntinlupa,1770, Philippines AB Mauri Spain, S.L.U. AB Mauri Philippines, Inc. AB Vista Iberia, S.L. Poland Levadura 5, Villarrubia 14710, Cordoba, Spain Przemysłowa 2, 67-100 Nowa Sól, Lubuskie, ABF Iberia Holding S.L. Poland C/ Escultor Coomonte Bl. 2, Entreplanta, AB Foods Polska Spólka z ograniczona Benavente, Zamora, Spain odpowiedzialnoscia (AB Foods Polska Sp. Agroteo S.A. 53% z o.o.) Calle Comunidad do Murcia, Parcela LIE-1-03, ul. Rabowicka 29/31, 62-020, Swarzędz – Jasin, Plataforma Logistica de Fraga, 22520, Huesca, Spain Poland Alternative Swine Nutrition, S.L. Primark Sklepy spolka z ograniczona Avienda Virgen de Montserrat, 44 Castelloli, odpowiedzialnoscia (Primark Sklepy sp. z.o.o) 08719, Barcelona, Spain R. Twining and Company Spółka z ograniczona Germains Seed Technology, S.A. odpowiedzialnoscia (R. Twining and Company Plaza Pablo Ruiz Picasso S/N, Torre Picasso, Sp. z o. o.) Planta 37, Madrid, Spain ul. Główna 3A, Bruszczewo, 64-030, migiel, Illovo Sugar Espana, S.L. Poland Gran Via, 32 5o 28013, Madrid, Spain AB Agri Polska spolka z organiczona Primark Tiendas, S.L.U. odpowiedzialnoscia (AB Agri Polska sp.z.o.o) 8, 2 Calle Via Servicio I, 2 CP, 19190 Torija, Portugal Guadalajara, Spain Avenida Salvador Allende, n.º 99, Lisboa Oeiras, Primark Logistica, S.L. Sociedad Unipersonal Julião da Barra, Paço de Arcos e Caxias, Sri Lanka 2770-157, Paco de Arcos, Portugal 124 Templers Road, Mount Lavinia, Sri Lanka AB Mauri Portugal, S.A. 96% AB Mauri Lanka (Private) Limited Praça Marquês de Pombal, 1-8°, 1250 – 160 Switzerland Lisbon, Portugal Fabrikstrasse 10, CH-3176, Neuenegg, Switzerland Lojas Primark Portugal – Exploracao, Gestao e Wander AG Administracao de Espacos Comerciais S.A. Taiwan 5F, No. 217, Sec 3, Nanking E Rd, Taipei City, 104, Taiwan (R.O.C.) AB Food and Beverages Taiwan, Inc.

172 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

29. Group entities continued

% effective holding % effective holding Subsidiary undertakings if not 100% Subsidiary undertakings if not 100% Tanzania SPI Polyols, LLC Msolwa Mill Office, Kidatau, Kilombero District, Tanzania Twinings North America, Inc. Illovo Distillers (Tanzania) Limited 80% 155 Federal Street, Suite 700, Boston MA Illovo Tanzania Limited 02110, United States Kilombero Sugar Company Limited 55% Primark GCM LLC Thailand 158 River Road, Unit B, Clifton, NJ 07014, 11th Floor, 2535 Sukhumvit Road, Kwaeng United States Bangchak, Khet Prakhanong, Bangkok, 10260, Balsamic Express LLC Thailand 158 River Road, Unit A, Clifton, NJ 07014, AB Food & Beverages (Thailand) Ltd. United States ABF Holdings (Thailand) Ltd. Modena Fine Foods, Inc. 1 Empire Tower, 24th Floor, Unit 2412-2413, 2590 Pioneer Avenue, Suite D, Vista, CA 92081 South Sathorn Road, Yannawa, Sathorn, PennyPacker, LLC 80% Bangkok, 10120, Thailand 18757 Burbank Blvd., Suite 212, Tarzana, CA AB World Foods Asia Ltd 91356 229/110 Moo 1, Teparak Road, Prosecco Source, LLC T. Bangsaothong, A. Bangsaothong, Uruguay Samutprakarn, 10540, Thailand Cno. Carlos Antonio Lopez 7547, Jasol Asia Pacific Limited Montevideo, Uruguay Turkey Levadura Uruguaya S.A. Aksakal Mahallesi, Kavakpinari, Kume Evleri Venezuela No. 5, Bandirma- Balikesir, 10245, Turkey Av. Rio Caura, Torre Humboldt, Piso 16, Mauri Maya Sanayi A.S. Of. 16-12. Urb. Prados del Este, Caracas, United Arab Emirates Estado Miranda, Bolivarian Republic of Office 604ª, Jafza LOB 15, Jebel Ali Freezone, Venezuela Dubai, PO BOX 17620, United Arab Emirates Alimentos Fleischmann, C.A., AB Mauri Middle East FZE Oficinas Once 3 (N° 11-3) y Once 4 (N° 11-4), United States Torre Mayupan, Centro Comercial San Luis, CT Corporation System, 818 West Seventh Av.Principal Urbanización San Luis, cruce con Street, Suite 930, Los Angeles CA 90017, Calle Comercio, Caracas, Bolivarian Republic United States of Venezuela AB Mauri Food Inc. Compañía de Alimentos Latinoamericana The Corporation Trust Company, Corporation de Venezuela (CALSA) S.A. Trust Center, 1209 Orange Street, Wilmington Vietnam DE 19801, United States Unit 2, 100 Nguyen Thi Minh Khai Street, AB Enzymes, Inc. Ward 6, District 3, Ho Choi Minh City, Vietnam AB Vista, Inc. AB Agri Vietnam Company Limited AB World Foods US, Inc. Km 102, Highway 20, La Nga Commune – ABF North America Corp. Dinh Quan District, Dong Nai Province, Vietnam ABF North America Holdings, Inc. AB Mauri Vietnam Limited 66% Abitec Corporation Zambia ACH Food Companies, Inc. Nakambala Estates, Plot No. 118a ACH Jupiter LLC Lubombo Road, Off Great North Road, Zambia B.V. ABF Delaware, Inc. Illovo Sugar (Zambia) Limited Germains Seed Technology, Inc. Nanga Farms PLC 75% PGP International, Inc. Tukunka Agricultural Limited 75% Primark US Corp. Zambia Sugar plc 75% SPI Pharma, Inc.

Lusaka Stock Exchange (LuSE) regulations require all listed companies in Zambia to have a minimum of 25% of their shares held by public investors to constitute a free float. As a result, Illovo Sugar was required to reduce its shareholding in Zambia Sugar plc by 6.6%. Effective 26 September 2014, 5.1% of the shares were sold to local Zambian institutional investors. Further, as agreed with the LuSE, the remaining 1.5% were offered and sold to a local Zambian institutional investor on 5 December 2017. The shareholding for Illovo Sugar at 14 September 2019 was 75% of the total shareholding. The results and balance sheet of Primark Mode Ltd. & Co. KG are included in these financial statements and these financial statements will be filed in Germany. As a consequence, Primark Mode Ltd. & Co. KG is exempt from the requirement to file its own financial statements under section 264b HGB. Associated British Foods plc has irrevocably guaranteed all commitments entered into by each of the Irish incorporated subsidiary undertakings listed below, including amounts shown as liabilities in the statutory financial statements of these companies, in respect of the financial year ended 14 September 2019. As a consequence, these subsidiary undertakings may qualify for the exemption under section 357 of the Companies Act 2014 (Ireland) from the provisions of sections 347 and 348 of that Act. Abdale Finance Limited Primark Limited Primark Holdings Primark Pension Trustees Limited

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 173 Notes forming part of the financial statements for the 52 weeks ended 14 September 2019

29. Group entities continued Joint ventures A list of the group’s joint ventures as at 14 September 2019 is given below. All joint ventures are included in the group’s financial statements using the equity method of accounting.

Joint ventures % holding Joint ventures % holding United Kingdom China Weston Centre, 10 Grosvenor Street, London, 1828 Tiejueshan Road, Huangdao District, Qingdao, W1K 4QY, United Kingdom Shandong Province, China Frontier Agriculture Limited 50% Qingdao Xinghua Cereal Oil and Foodstuff Co., Ltd 25% Boothmans (Agriculture) Limited 50% Finland Forward Agronomy Limited 50% Tykkimäentie 15b (PO Box 57), Rajamäki, G F P (Agriculture) Limited 50% FIN-05201, Finland GH Grain Limited 50% Roal Oy 50% Grain Harvesters Limited 50% France Intracrop Limited 50% 59, Chemin du Moulin, 695701, Carron, Dardilly, France Nomix Limited 50% Synchronis North Wold Agronomy Limited 50% 50% Phoenix Agronomy Limited 50% Germany SOYL Limited 50% Brede 4, 59368, Werne, Germany The Agronomy Partnership Limited 50% UNIFERM GmbH & Co. KG 50% Fine Lady Bakeries Ltd, Southam Road, Banbury, INA Nahrmittel GmbH 50% Oxfordshire, OX16 2RE, United Kingdom UNIFERM Verwaltungs GmbH 50% Chiltern Bakeries Limited 44% Brede 8, 59368, Werne, Germany Berth 36, Test Road, Eastern Docks, Southampton, UNILOG GmbH 50% Hampshire, SO14 3GG, United Kingdom Poland Southampton Grain Terminal Limited 25% ul. Wybieg, nr 5, lok 9, miesjsc, KOD 61-315, Poznan, Kingseat, Newmacher, Aberdeenshire, Poland AB21 0UE, Scotland, United Kingdom Uniferm Polska Sp Z.o.o 50% Euroagkem Limited 50% South Africa Lothian Crop Specialists Limited 50% 1 Nokwe Avenue, Ridgeside, Umhlanga Rocks, 1st Floor Offices, 10 Hereford Road, Abergavenny, Kwazulu Natal 4320, South Africa Monmouthshire, NP7 5P, United Kingdom Glendale Distilling Company 50% Brian Lewis Agriculture Limited 50% Spain 47, Beaumount Seymour & Co, Butt Road, Colchester, C/ Raimundo Fernández, Villaverde 28, Madrid, Spain Essex CO3 3BZ, United Kingdom Compañía de Melazas, S.A. 50% Anglia Grain Holdings Limited 50% United States Riverside, Wissington Road, Nayland, Colchester, C T Corporation System, 2 North Jackson Street, Suite Essex, CO6 4LT, United Kingdom 605, Montgomery AL 36104, United States Anglia Grain Services Limited 50% SOC Land Acquisition Company, LLC 50% Unit 8, Burnside Business Park, Burnside Road, Market Supreme Oil Company-South, LLC 50% Brayton, TF9 3UX, United Kingdom The Corporation Trust Company, Corporation Trust B.C.W (Agriculture) Limited 50% Center, 1209 Orange Street, Wilmington DE 19801, Witham St Hughs, Lincoln, LN6 9TN, United Kingdom United States Nomix Enviro Limited 50% Stratas Foods LLC 50% Australia Stratas Receivables I LLC 50% Building A, Level 2, 11 Talavera Road, North Ryde Supreme Oil Company LLC 50% NSW 2113, Australia Supreme Oil Company IC-DISC, Inc. 50% Fortnum & Masons Pty Limited 33% Supreme Oil Central, Inc. 50% Chile Ave. Balmaceda 3500, Valdivia, Chile Levaduras Collico S.A. 50%

174 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

29. Group entities continued Associates A list of the group’s associates as at 14 September 2019 is given below. All associates are included in the group’s financial statements using the equity method of accounting.

% % Associates holding Associates holding United Kingdom Italy 6th Floor 10 Bloomsbury Way, London, England, Piazza Borromeo 14, 20123 Milano, Italia WC1A 2SL, United Kingdom Czarnikow Italia Srl 43% Bakers Basco Limited 20% Kenya Paternoster House, 65 St. Paul's Churchyard, I & M Bank House, Second Ngong Avenue, London, EC4M 8AB, United Kingdom P.O. Box 10517, Nairobi 00100, Kenya C. Czarnikow Limited 43% C. Czarnikow Sugar (East Africa) Limited 43% Czarnikow Group Limited 43% Mauritius C. Czarnikow Sugar Futures Limited 43% No 5 President John Kennedy Street, Port Louis, C. Czarnikow Sugar Limited 43% Mauritius Sugarworld Limited 43% Sukpak Limited 30% Vernon House, 40 New North Road, Huddersfield, West Mexico Yorkshire, HD1 5LS, United Kingdom Descartes #54 Int. 101, Col. Nueva Anzures Ciudad de Proper Nutty Limited 40% Mexico, 11590, Mexico Australia C. Czarnikow Sugar (Mexico), S.A. de C.V. 43% 283 Flagstaff Road, Brinkley SA 5253, Australia Czarnikow Servicios de Personales (Mexico), S.A. de C.V. 43% Big Pork River Pty Ltd 20% New Zealand Murray Bridge Bacon Pty Ltd 20% c/o KPMG, 18 Viaduct Harbour Avenue, Maritime 32 Davis Road, Wetherill Park, Sydney NSW 2164, Square, Auckland, New Zealand Australia New Food Coatings (New Zealand) Limited 50% New Food Coatings Pty Ltd 50% Philippines Bahrain Unit A, 103 Excellence Avenue, Carmelray Suite No. 1959 Diplomatic Commercial Office, Tower B, Industrial Park 1, Canlubang, Calamba, Laguna, Building No. 1565, Road 1722, Diplomatic Area/Manama Philippines 317, Bahrain New Food Coatings (Philippines) Inc. 50% Czarnikow Supply Chain Sales for Food & Beverage Singapore Ingredients Bahrain S.P.C. 43% 3 Phillip Street, #14-01 Royal Group Building, Singapore Brazil 048693 Rua Fidêncio Ramos, 308, cj64, Torre A, Vila Olímpia, C. Czarnikow Sugar Pte. Limited 43% São Paulo, SP, Cep 04551-010, Brasil South Africa Czarnikow Brasil Ltda 43% 1 Gledhow Mill Road, Gledhow, Kwadukuza, 4450, China South Africa Room 17A01, 232 Zhong Shan 6th Road, Guangzhou Gledhow Sugar Company (Pty) Limited 30% City, Guangdong Province, 510180, China Tanzania C. Czarnikow Sugar (Guangzhou) Company Ltd 43% 7th Floor Amani Place, Ohio Street, PO Box 38568, India Dar-es-Salaam, Tanzania House No. 1-8-373/A, Chiran Fort Lane, Begumpet, Czarnikow Tanzania Limited 43% Hyderabad, 500003, India Msolwa Mill Office, Kidatau, Tanzania C. Czarnikow Sugar (India) Private Limited 43% Kilombero Sugar Distributors Limited Indonesia 20% Komplex Puri Mutiara Blok A21-22, JL. Griya Utama, Thailand Sunter Agung, Jakarta, 14350, Indonesia 909 Moo 15, Teparak Road, Tambol Bangsaothong, King PT Indo Fermex 49% Amphur Bangsaothong, Samutprakarn, Thailand P.T. Jaya Fermex 49% Newly Weds Foods (Thailand) Ltd 50% PT Sama Indah 49% Newly Wed Foods (Trading) Limited 50% Israel 20th Floor, UBC II Building, 591 Sukhumvit Road, North 3 Golda Meir St. Ness Ziona, 74-036, Israel Klongton, Wattana, Bangkok 10110 Thailand Sucarim (Czarnikow Israel Sugar Trading) Ltd 43% Czarnikow (Thailand) Limited 43% 8th Galgalay haplada, Herzlia, Israel United States Sucris Limited 21% 333 SE 2nd Avenue, Suite 2860, Miami, FL 33131, USA C. Czarnikow Sugar Inc. 43%

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 175 Company balance sheet at 14 September 2019

2019 2018 Note £m £m

Fixed assets Intangible assets 1 19 18 Investments in subsidiaries 2 703 688 722 706 Current assets Debtors – due within one year 3 2,858 3,629 – due after one year 3 151 232 Employee benefits assets – due after one year 4 220 571 Derivative assets 64 60 Cash and cash equivalents 931 822 4,224 5,314 Creditors: amounts falling due within one year Bank loans and overdrafts – unsecured (3) (241) Other creditors 6 (2,466) (2,606) (2,469) (2,847) Net current assets 1,755 2,467 Total assets less current liabilities 2,477 3,173 Creditors: amounts falling due after one year Bank loans – unsecured (346) (335) Amounts owed to subsidiaries 6 (252) (210) Employee benefits liabilities 4 (38) (41) Deferred tax liabilities 5 (21) (79) (657) (665) Net assets 1,820 2,508

Capital and reserves Issued capital 7 45 45 Capital redemption reserve 7 2 2 Hedging reserve 7 2 (9) Profit and loss reserve 7 1,771 2,470 Equity shareholders’ funds 1,820 2,508 The Company’s loss for the 52 weeks ended 14 September 2019 was £36m (52 weeks ended 15 September 2018 was £62m). The financial statements on pages 176 to 182 were approved by the board of directors on 5 November 2019 and were signed on its behalf by:

Michael McLintock John Bason Chairman Finance Director

176 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Company statement of changes in equity for the 52 weeks ended 14 September 2019

Capital Profit Share redemption Hedging and loss capital reserve reserve reserve Total £m £m £m £m £m Balance as at 16 September 2017 45 2 (5) 2,626 2,668

Total comprehensive income Loss for the period recognised in the income statement – – – (62) (62)

Remeasurement of defined benefit schemes – – – 293 293 Deferred tax associated with defined benefit schemes – – – (49) (49) Movement in cash flow hedging position – – (4) 1 (3) Other comprehensive income/(loss) – – (4) 245 241 Total comprehensive income/(loss) – – (4) 183 179

Transactions with owners Dividends paid to equity shareholders – – – (327) (327) Net movement in own shares held – – – (11) (11) Deferred tax associated with share-based payments – – – (1) (1) Total transactions with owners – – – (339) (339) Balance as at 15 September 2018 45 2 (9) 2,470 2,508

Total comprehensive income Loss for the period recognised in the income statement – – – (36) (36)

Remeasurement of defined benefit schemes – – – (361) (361) Deferred tax associated with defined benefit schemes – – – 59 59 Movement in cash flow hedging position – – 11 – 11 Other comprehensive income/(loss) – – 11 (302) (291) Total comprehensive income/(loss) – – 11 (338) (327)

Transactions with owners Dividends paid to equity shareholders – – – (358) (358) Net movement in own shares held – – – (3) (3) Total transactions with owners – – – (361) (361) Balance as at 14 September 2019 45 2 2 1,771 1,820

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 177 Accounting policies for the 52 weeks ended 14 September 2019

Basis of preparation The financial statements are presented in sterling, rounded to the nearest million. They are prepared under the historical cost basis, except that derivative financial instruments are stated at their fair value, and in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the Companies Act 2006. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and certain related party transactions. Where required, equivalent disclosures are given in the consolidated financial statements. As permitted by section 408(4) of the Companies Act 2006, a separate income statement and statement of comprehensive income for the Company has not been included in these financial statements. The principal accounting policies adopted are described below. They have all been applied consistently to all years presented. Intangible assets Intangible assets comprise goodwill arising on business combinations and operating intangibles. Goodwill is defined under ‘Business combinations’ on page 124 of the consolidated financial statements. The Companies Act 2006 requires goodwill to be amortised on a systematic basis over its useful economic life. Under FRS 101 goodwill is not amortised, but is instead reviewed for impairment on an annual basis or whenever there are indicators of impairment. The Company is therefore invoking a ‘true and fair view override’ to overcome the requirement to amortise goodwill in the Companies Act 2006. Had the Company amortised goodwill, a period of three years would have been chosen as its useful life from the date of transition. The loss for the year would have been no different as the goodwill would already have been fully amortised. Intangible assets other than goodwill are stated at cost less accumulated amortisation and impairment charges. Amortisation is charged to the income statement on a straight-line basis over the estimated useful economic lives of intangible assets from the date they are available for use. The estimated useful lives are generally deemed to be no longer than five years. Investments in subsidiaries Investments in subsidiaries are stated at cost less any provision for impairment. Financial assets and liabilities Financial assets and financial liabilities, except for derivatives, are measured initially at fair value, plus directly attributable transaction costs, and thereafter at amortised cost. Derivatives Derivatives are used to manage the Company’s economic exposure to financial risks. The principal instruments used are foreign exchange contracts and swaps. Derivatives are recognised in the balance sheet at fair value based on market prices or rates, or calculated using either discounted cash flow or option pricing models. Changes in the value of derivatives are recognised in the income statement unless they qualify for hedge accounting when recognition of any change in fair value depends on the nature of the item being hedged. Pensions and other post-employment benefits The Company operates one defined contribution and two defined benefit pension schemes. The Company is the principal employer of the Associated British Foods Pension Scheme, which is a funded final salary scheme that is closed to new members, as well as a small unfunded final salary scheme. For the defined benefit schemes, the amount charged in the income statement is the cost of benefits accruing to employees over the year, plus any benefit improvements granted to members by the Company during the year. It also includes net interest expense or income calculated by applying the liability discount rate to the net pension asset or liability. The difference between market value of assets and present value of liabilities is disclosed as an asset or liability in the balance sheet. Any related deferred tax (to the extent recoverable) is disclosed separately in the balance sheet. Remeasurements are recognised immediately in other comprehensive income. Surpluses are recognised only to the extent that they are recoverable. Contributions payable by the group in respect of defined contribution plans are charged to operating profit as incurred.

178 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

Income tax Income tax on profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items taken directly to equity. Current tax is the tax expected to be payable on taxable income for the year, using tax rates enacted or substantively enacted during the period, together with any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, using tax rates enacted or substantively enacted at the balance sheet date, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Share-based payments The fair value of the share awards at grant date is recognised as an employee expense with a corresponding increase in equity, spread over the period during which the employees become unconditionally entitled to the shares. The amount recognised is adjusted to reflect expected and actual levels of vesting except where the failure to vest is as a result of not meeting a market condition. Where the Company grants allocations of shares to employees of its subsidiaries, these are accounted for on the same basis as allocations to employees of the Company, except that the fair value is recognised as an increase to investment in subsidiaries with a corresponding increase in equity. Cash and cash equivalents Cash and cash equivalents comprise bank and cash balances, call deposits and short-term investments with original maturities of three months or less.

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 179 Notes to the company financial statements for the 52 weeks ended 14 September 2019

1. Intangible assets Operating Goodwill intangibles Total £m £m £m Cost At 15 September 2018 14 7 21 Acquisitions – 2 2 At 14 September 2019 14 9 23

Amortisation At 15 September 2018 – (3) (3) Amortisation – (1) (1) At 14 September 2019 – (4) (4)

Net book value At 15 September 2018 14 4 18 At 14 September 2019 14 5 19

2. Investments in subsidiaries £m At 15 September 2018 688 Additions 15 At 14 September 2019 703 The additions relate to the allocation of shares under equity-settled share-based payment plans to employees of the Company’s subsidiaries. There were no provisions for impairment in either year.

3. Debtors 2019 2018 £m £m Amounts falling due within one year Amounts owed by subsidiaries 2,800 3,592 Other debtors 13 18 Corporation tax recoverable 45 19 2,858 3,629 Amounts falling due after one year Amounts owed by subsidiaries 151 232 The directors consider that the carrying amount of debtors approximates their fair value.

4. Employee entitlements 2019 2018 2019 2018 2019 2018 assets assets liabilities liabilities net net £m £m £m £m £m £m Reconciliation of changes in assets and liabilities At beginning of year 3,714 3,695 (3,184) (3,462) 530 233 Current service cost – – (30) (32) (30) (32) Employee contributions 7 7 (7) (7) – – Employer contributions 41 28 – – 41 28 Benefit payments (160) (214) 160 214 – – Past service cost – – (14) 1 (14) 1 Interest income/(expense) 104 96 (89) (89) 15 7 Return on scheme assets less interest income 116 102 – – 116 102 Actuarial (losses)/gains arising from changes in financial assumptions – – (507) 129 (507) 129 Actuarial gains arising from changes in demographic assumptions – – 23 49 23 49 Experience gains on scheme liabilities – – 8 13 8 13 At end of year 3,822 3,714 (3,640) (3,184) 182 530 The net pension asset of £182m comprises a funded scheme with a surplus of £220m and an unfunded scheme with a deficit of £38m. Further details of the Associated British Foods Pension Scheme are contained in note 11 of the consolidated financial statements.

180 Associated British Foods plc Annual Report and Accounts 2019 Financial statements

5. Deferred tax assets and liabilities Employee Share-based benefits payments Other Total £m £m £m £m At 15 September 2018 (90) 2 9 (79) Amount charged to the income statement – 1 – 1 Amount charged/(credited) to equity 59 – (2) 57 At 14 September 2019 (31) 3 7 (21)

6. Other creditors 2019 2018 £m £m Amounts falling due within one year Other taxation and social security 1 1 Accruals and deferred income 66 68 Amounts owed to subsidiaries 2,399 2,537 2,466 2,606 Amounts falling due after one year Amounts owed to subsidiaries 252 210 The directors consider that the carrying amount of creditors approximates their fair value.

7. Capital and reserves Share capital At 15 September 2018 and 14 September 2019, the Company’s issued and fully paid share capital comprised 791,674,183 15 ordinary shares of 5 ⁄22p, each carrying one vote per share. Total nominal value was £45m. Capital redemption reserve The non-distributable capital redemption reserve arose following redemption of 2 million £1 deferred shares at par in 2010. Dividends Details of dividends paid and proposed are provided in note 6 to the consolidated financial statements. Share-based payments Details of the Company’s equity-settled share-based payment plans are provided in note 23 to the consolidated financial statements. Hedging reserve The hedging reserve comprises all changes in the value of derivatives to the extent that they are effective cash flow hedges, net of amounts recycled from the hedging reserve on occurrence of the hedged transaction or when the hedged transaction is no longer expected to occur.

8. Contingent liabilities Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the Company considers these to be insurance arrangements and accounts for them as such. The guarantee contract is treated as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. The Company had provided £888m of guarantees in the ordinary course of business as at 14 September 2019 (2018 – £802m).

Annual Report and Accounts 20192019 AssociatedAssociated British Foods plc 181 Notes to the company financial statements for the 52 weeks ended 14 September 2019

9. Related parties The Company has a controlling shareholder relationship with its parent company, Wittington Investments Limited, with the trustees of the Garfield Weston Foundation and with certain other individuals who hold shares in the Company. Further details of the controlling shareholder relationship are included in note 29 to the consolidated financial statements. The Company has a related party relationship with its subsidiaries, associates and joint ventures and directors. In the course of normal operations, related party transactions entered into by the Company have been contracted on an arm’s length basis. Material transactions and year end balances with related parties (excluding wholly-owned subsidiaries) were as follows:

2019 2018 Sub note £000 £000

Charges to Wittington Investments Limited in respect of services provided by the Company 1,143 1,045 Dividends paid by the Company and received in a beneficial capacity by: (i) trustees of the Garfield Weston Foundation and their close family 1 12,083 11,685 (ii) directors of Wittington Investments Limited who are not trustees of the Foundation and their close family 1 5,941 3,071 (iii) directors of the Company who are not trustees of the Foundation and are not directors of Wittington Investments Limited 1 82 62 Charges to fellow subsidiary undertakings 2 35 43 Charges to non-wholly owned subsidiaries 2 251 1,902 Charges to joint ventures 2 – 40 Interest income earned from non-wholly owned subsidiaries 2 203 165 Amounts due from non-wholly owned subsidiaries 2 3,734 3,507

1. Details of the nature of the relationships with these bodies are set out in note 28 of the consolidated financial statements. 2. Details of the Company’s subsidiaries, joint ventures and associates are set out in note 29 of the consolidated financial statements.

10. Other information Emoluments of directors The remuneration of the directors of the Company is shown in the Remuneration report for the group on page102. Employees The Company had an average of 197 employees in 2019 (2018 – 185). Auditors’ fees Note 2 to the consolidated financial statements of the group provides details of the remuneration of the Company’s auditors on a group basis.

182 Associated British Foods plc Annual Report and Accounts 2019 Financial statements Progress report Saturday nearest to 15 September

2015 2016 2017 2018 2019 £m £m £m £m £m Revenue 12,800 13,399 15,357 15,574 15,824 Adjusted operating profit 1,082 1,118 1,363 1,404 1,421 Exceptional items (98) – – – (79) Transaction costs – (5) (5) (2) (2) Amortisation of non-operating intangibles (55) (21) (28) (41) (47) Acquired inventory fair value adjustments – – – (23) (15) Profits less losses on disposal of non-current assets 8 11 6 6 4 Profits less losses on sale and closure of businesses (172) (14) 293 (34) (94) Finance income 8 6 9 15 15 Finance expense (61) (56) (59) (50) (42) Other financial (expense)/income (5) 3 (3) 4 12 Profit before taxation 707 1,042 1,576 1,279 1,173 Taxation (191) (221) (365) (257) (277) Profit for the period 516 821 1,211 1,022 896

Basic and diluted earnings per ordinary share (pence) 66.8 103.4 151.6 127.5 111.1 Adjusted earnings per share (pence) 101.5 106.2 127.1 134.9 137.5 Dividends per share (pence) 35.0 36.75 41.0 45.0 46.35

183Annual Report Associated and Accounts British 2019 Foods plc AssociatedAnnual British Report Foods and plcAccounts 2019183 Company directory

Associated British Foods plc Auditor Timetable Registered office Ernst & Young LLP Chartered Accountants Interim dividend paid Weston Centre 5 July 2019 Bankers 10 Grosvenor Street Barclays Bank PLC Final dividend to be paid London W1K 4QY Lloyds Banking Group plc 10 January 2020 Company registered in England, The Royal Bank of Scotland plc Annual general meeting number 293262 Brokers 6 December 2019 Company Secretary Credit Suisse Securities (Europe) Limited Interim results to be announced Paul Lister One Cabot Square 21 April 2020 London E14 4QJ Registrar Website Equiniti Barclays Bank PLC www.abf.co.uk Aspect House 5 The North Colonnade Spencer Road Canary Wharf Lancing BN99 6DA

Warning about share fraud From time to time, companies, their subsidiary companies, and shareholders can be the subject of investment scams. The perpetrators obtain lists of shareholders or subsidiaries and make unsolicited phone calls or correspondence concerning investment matters. They may offer to sell worthless or high risk shares and may offer to buy your current shareholdings at an unrealistic price. They will often also inform you of untrue scenarios to make you think that you need to sell your shares or to justify an offer that seems too good to be true. These operations are commonly known as ‘boiler rooms’. Shareholders are advised to be very wary of any offers of unsolicited advice, discounted shares, premium prices for shares they own or unsolicited investment opportunities. If you receive any such unsolicited calls, correspondence or investment advice:

• ensure you get the correct name of the person and firm; • check that the firm is on the Financial Conduct Authority (FCA) Register to ensure they are authorised at www.register.fsa.org.uk; • use the details on the FCA Register to contact the firm; • call the FCA Consumer Helpline (0800 111 6768) if there are no contact details in the Register or you are told they are out of date; and • if you feel uncomfortable with the call or the calls persist, simply hang up. Forward-looking statements This report contains forward-looking statements. These have been made by the directors in good faith based on the information available to them up to the time of their approval of this report. The directors can give no assurance that these expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The directors undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

184 Associated British Foods plc Annual Report and Accounts 2019 Design and production

This document is printed on Nautilus SuperWhite using vegetable oil-based inks. Made in Austria, the stocks comprise 100% de-inked post-consumer waste. Pulps used are totally chlorine-free. The Forest Stewardship Council® (FSC®) is dedicated to the promotion of responsible forest management worldwide. The forest-based material in this product is recycled and the FSC® label on this product ensures responsible use of the world’s forest resources. Associated British Foods plc Weston Centre 10 Grosvenor Street London W1K 4QY Tel + 44 (0) 20 7399 6500 Fax + 44 (0) 20 7399 6580

For an accessible version of the Annual Report and Accounts please visit our website www.abf.co.uk